Chinese authorities tighten mortgage rules in an effort to reign in property prices

By Mike Jones


After briefly dipping below 0.8200 overnight, the NZD/USD has rebounded back to around 0.8230 this morning.

The combined negatives of slumping Chinese stock markets and surprisingly weak Australian building approvals data (-2.4%m/m vs. +2.8% expected) set the NZD/USD on a downward course yesterday.

But, overnight, the downtrend ran out of puff. It’s hard to pinpoint the exact catalyst for the NZD bounce, although more encouraging US economic data (New York ISM) and Warren Buffet’s assertion that stocks still offer value may have helped.

And, as we noted yesterday, solid NZD demand from local corporate and real money accounts continues to support the currency on dips.

It’s worth noting, NZ-US interest rate differentials – a key ‘fundamental’ driver of the NZD/USD ­– have barely budged over the past fortnight. On their own, they are consistent with a NZD/USD around 0.8400.

This lends weight to our view that the recent NZD/USD selloff has been driven more by global risk aversion and a speculative positioning than any change in ‘fundamentals’.

Another key fundamental driver of the NZD – commodity prices – continue to trend higher in world terms. This was confirmed by yesterday’s 1% gain in the ANZ commodity price index.

We expect tomorrow’s GDT dairy auction to continue this theme with another increase in milk prices.

Direction for the NZD today will come from across the Tasman (there is no NZ data on the slate). Following Australian retail sales and current account figures at 1:30pm (NZT), all eyes will be on the RBA at 4:30pm.

While the inflation outlook provides scope for the RBA to ease further, the data over the past month have not been sufficiently ‘bad’ to justify any change in policy. We and the market look for the cash rate to be left at 3%.

The risk for the AUD and NZD is that the tone of the Statement causes the market to rethink its view on the 50bps of RBA rate cuts still priced in. A less dovish-than-priced RBA missive could see NZD/AUD break below support at 0.8045.

In contrast, if the RBA retains a clear easing bias, the cross may end up closer to 0.8150. 


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It’s been another slow start to the week in currency markets. The USD index has tracked a slow and steady 82.20-82.45 sideways range over the past 24 hours.

Overall, investors remain in a defensive frame of mind, reflecting ongoing Italian political uncertainty and recent data suggesting global growth has throttled back a gear.

Stoking global growth concerns yesterday was the news Chinese authorities had tightened mortgage rules in an effort to reign in property prices.

Our view is that these measures are not necessarily a bad thing in that they will assist the Chinese rebalancing and hopefully prevent asset price bubbles.

Nonetheless, the Shanghai Composite Index was thumped by 3.65%. And negative sentiment soon spilled over into European and US markets.

The Italian MIB index fell 0.9%, to be down 13% in just over one month. Commodity prices have suffered modest declines, led by a 1% fall in oil prices (to US$89.70/barrel).

This slightly more risk averse backdrop kept the relative ‘safe-haven’ offered by the USD and JPY in favour.

The EUR/USD slowly slipped below 1.3000, with vague rumours of an Italian sovereign downgrade sapping EUR sentiment.

Steady selling of JPY crosses has seen AUD, CAD, and NZD underperform.  Still, currencies and equity markets managed an unconvincing bounce in New York trade, which is being attributed to Warren Buffet’s comments stocks still offer “good value”.

Looking ahead, we suspect markets are likely to keep treading cautiously ahead of Thursday’s all-important ECB meeting. Investors are on-guard for a more dovish tone from Draghi which, if seen, has the potential to spur another wave of EUR selling and press the single currency as low as 1.2880.

This afternoon’s RBA meeting and Australian retail sales will set the tone for today. European retailing figures are the only notable data release due tonight.

Other News:

*BoJ Governor Nominee Kuroda says BoJ will do “whatever we can” to beat deflation. Possible strategies include increasing asset purchases and/or the range of assets purchased, including long-term government bonds.

*New York ISM rises from 56.7 in January to 58.8 in February – an 11 month high.

Event Calendar:

5 March: AU retail sales; AU RBA decision; EU retail sales; US Fed’s Lacker speaks;

6 March: NZ building work; AU GDP; UK BoE testimony; EU GDP; US ADP employment; Bank of Canada; US factory orders & Fed’s Beige Book;

7 March: NZ wholesale trade; Bank of Japan decision; Bank of England decision; ECB decision; US jobless claims;

8 March: NZ manufacturing activity; JN GDP; CH trade balance; US non-farm payrolls; US unemployment rate.

All its research is available here.

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