Not expecting rate cut by RBNZ but some acknowledgement of recent economic data softness

By Kymberly Martin


The NZD/USD has traded with very little pulse over the past 24-hours, to sit just below 0.8260 at present.

As global risk appetite has remained fairly stable, and in the absence of key local data releases, the NZD has traded a fairly quiet path ahead of today’s RBNZ meeting.

We do not expect a cut today (the market prices around a 15% chance of such). But we expect the RBNZ’s statement will acknowledge the lower starting point for their inflation trajectory, and recent economic data softness.

The persistently strong NZD will also likely receive a mention.

However, the RBNZ will likely be more tolerant of this given the recent supportive trend in NZ commodity prices.

Offsetting these concerns however, are signs of growing house price pressures, forward-looking data that are holding up, and a more stable global backdrop. Hence no cut.

Our central view is the market will respond to the more dovish tone expressed by the RBNZ, by increasing its pricing for rate cuts in the year ahead. This would likely undermine the relative yield support for the NZD.

However, it is difficult to see a response near-term that would see the NZD/USD break out of its range of the past few months i.e. 0.8080-0.8350.


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Most currencies traded in fairly tight ranges overnight. The JPY was the underperformer.

Markets continue to cling onto relative optimism in the face of mixed trans-Atlantic data overnight, and little concrete progress in the US fiscal cliff negotiations. Equities managed to record modest positive returns.

Our risk appetite index (scale 0-100%) remains at a healthy 73%.

Overnight, the EUR/USD failed to break through key resistance, falling back from close to 1.3130 to sit at 1.3090. The key data release for the Eurozone tonight will be Q3 GDP. Consensus forecasts this at -0.1%q/q, in line with the previous quarter. It would likely take a meaningful positive surprise for the EUR to convincingly break through key resistance.

Yesterday’s AU Q3 GDP data came close to expectation, at 0.5%q/q or 3.1%y/y. The currency took the data in its stride. Yesterday evening in a scheduled speech, RBA’s Lowe said that AU rates are lower than would otherwise be the case, partly to offset the impact of “an uncomfortably high” AUD.

Note, this is different from stating rate cuts are an attempt to bring down the currency. Lowe was also quoted as saying FX intervention is a big step, but won’t be ruled out.

As it was, the AUD/USD traded fairly steadily above the 1.0460 level. The key for the AUD will be the AU employment report today.

The JPY was the key underperformer overnight. With the Japanese elections imminent, the market continues to speculate regarding further monetary stimulus post the elections. The USD/JPY rose from 81.90 to 82.40.

Tonight, the market will focus on the ECB and BoE rate announcement meetings. Whilst neither is expected to cut rates, the market will likely dissect every word from ECB President Draghi at the associated press conference.

Other News:

* Eurozone Services PMI (F), 46.7 vs. 45.7 expected

* UK PMI Services 50.2 vs. 51.0 expected

* Eurozone Retail Sales, -1.2%m/m vs. -0.2% expected

* US ADP Employment Change 118K vs. 125K expected

* US ISM non-manufacturing, 54.7 vs. 53.3 expected

Event Calendar:

6 December: RBNZ policy decision and statement; AU employment; UK BoE policy decision; EU ECB policy decision; US jobless claims;

7 December: NZ wholesale trade; NZ ANZ consumer confidence; EU ECB’s Draghi speaking; US non-farm payrolls

All its research is available here.

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