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RBNZ Governor Wheeler more hawkish than predecessor and not considering rate cut or currency intervention in near-term

RBNZ Governor Wheeler more hawkish than predecessor and not considering rate cut or currency intervention in near-term

By Mike Jones


Despite a couple of attempts to break lower, the NZD/USD couldn’t resist the gravitational pull of the 0.8145-0.8240 range last week. A modest bounce on Friday night means the NZD/USD starts the week near the top end of this range.

We had two opportunities to get to know new RBNZ Governor Wheeler last week. Both the October OCR review and the Governor’s inaugural speech supported our view 1) Wheeler is more hawkish (less dovish?) than his processor predecessor, and 2) the RBNZ is not seriously considering a rate cut or currency intervention to lower the NZD at present.

Accordingly, the NZ rate market priced out some of the risk of a near-term RBNZ rate cut last week, helping to shore up the yield advantage of the NZD.

NZ-US 3-year swap differentials rose from 219bps to 229bps. For the highly interest rate sensitive NZD/AUD, rising NZ yields helped the currency find a base of support around the 0.7900 region.

In terms of upcoming event risk, the local data calendar looks relatively sparse this week. So expect the currency to trade more at the whim of global sentiment. Probably the only local release important for the NZD will be Friday’s ANZ commodity price index.

World prices for NZ’s primary exports have turned higher of late, a ‘fundamental’ positive for the NZD. Another small gain in October’s ANZ index, as we expect, would simply add to the case.

Globally, US data will hog the limelight this week, although tomorrow’s Bank of Japan meeting will also be worth watching. NZD/JPY has been riding a bow-wave of buoyancy in global risk appetite of late. But, going into the BoJ meeting, we suspect the risks are for a lower NZD/JPY (see Majors).

All up, rising NZ-US yield differentials, coupled with the recent brightening in the global backdrop (US housing data looking better, Europe stable, China turning), reinforces our view the NZD/USD is still a buy on dips currency.

Near-term NZD/USD pullbacks should be limited to the 0.8080/0.8100 region initially. A break above the 0.8245 top end of the range would pave the way for a return to August’s 0.8350 highs.


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Currency markets were more or less becalmed on Friday night. A surge in the JPY provided the one exception.

USD/JPY skidded from above 80.00 to almost 79.60, in doing so unwinding nearly all of the week’s gains. It’s tempting to link the move to the ¥750b Japanese stimulus package announced on Friday.

However, a sharp decline in US bond yields is the more likely culprit. 10-year yields fell almost 8bps (to 1.74%) on Friday, bolstering the relative yield appeal of the JPY.

The near-term fortunes of the JPY will be dictated by tomorrow afternoon’s Bank of Japan decision. We expect an easing in the form of a ¥10t top-up to the BoJ’s asset purchase programme. Still, a result on our expectations may still disappoint the market, putting additional pressure on the JPY to rise.

Certainly, a sustained return to the lofty heights above 80.00 on USD/JPY looks unlikely in the absence of an all-guns-blazing easing from the BoJ.

Aside from the BoJ, US data and Greece will capture most of the market’s attention this week.

The heavy hitting double-act of US October ISM manufacturing and non-farm payrolls data is due this week. Some are suggesting the data is even more important given the proximity to the US election.

The recent improvement in US economic data has been partly responsible for investors’ more conciliatory attitude towards ‘risk’ of late. So we’ll have to see solid outcomes from the ISM and payrolls data just to keep market sentiment on the straight and narrow. Any downside misses will likely support the USD.

The official Chinese manufacturing PMI (released Thursday) will also be important for risk sentiment. An increase from 49.8 to 50.3 is expected, in line with the more positive flash estimate.

Eurozone finance ministers will this week decide if Greece has done enough to get 1) the next tranche of bailout cash and 2) a 2-year extension to its austerity targets.

The current expectation is that Greece will manage to get the big tick. So currency markets will only react if there are any unexpected hitches. Any reaction should be limited to modest EUR selling.

Other News:

*Chinese Ministry of Finance researcher says China will reach 2012 growth target of 7.5%, but medium to long-term growth outlook is “worrisome”.

*Advance estimate of US Q3 GDP prints above expectations (2.0% annualised vs. 1.8% expected).

Event Calendar:

Event Calendar: 29 October: JN retail trade; UK mortgage approvals; US personal income; US Dallas Fed index; 30 October: AU home sales; JN BoJ decision; AU RBA’s Lowe speaks; US consumer confidence; 31 October: NZ building consents; AU building approvals; AU credit growth; US Chicago PMI; US Fed’s William’s speaks; 1 November: CH PMI; CH HSBC PMI; AU RBA commodity prices; UK PMI; US ADP employment; US jobless claims; US ISM manufacturing; 2 November: NZ ANZ commodity prices; EU PMIs; UK PMI construction; US non-farm payrolls; US factory orders.

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