anz commentary
Outlook
Currency: Target remains 0.8154 for the NZD but risks of a correction lower have increased substantially with
the brief move above 0.81 yesterday. USD index continues to remain above 80 awaiting housing data tonight.
Bonds: Expect local yields to open unchanged.
Today: No local data today. Australian Q2 CPI due at 1330 NZST.
Review
Currency: Another stellar performance from the NZD yesterday as it eliminated stop loss buying orders with
ease. Further yield demand was evident although this began to wane slightly after the move above 0.81.
Fixed Income: US Treasuries posted modest gains as concerns over housing and riskier credit markets lend
support to bonds. A US$6b auction of 20-yr TIPS met with decent demand.
Equities: US stocks fell over 1 percent as housing concerns dragged financial and homebuilders stocks lower,
and a fall in oil prices weighed on energy stocks.
Commodities: Oil prices fell for a third day on speculation that US refineries are increasing their fuel production
and an official from Iran’s Oil Ministry said OPEC would raise output if required. Gold prices rose on the back of
USD weakness.
Text Box: 25 July 2007
MAJOR MARKET MOVERS
(0715 NZ TIME)
BNZ COMMENT
The NZD/USD broke above 0.8100 yesterday and went
on to record an intra-session high of 0.8110– its highest
level since January 1982.
Over the past day or so, the NZD/USD has been
propelled to the fresh post-float highs by a combination of
broad based USD weakness and heightened speculation
about the RBNZ raising the OCR to 8.25% on Thursday.
The positive NZD sentiment was also helped by the
announcement of EIB’s NZ$400m 5-year Eurokiwi issue.
Indeed, retail accounts out of Asia continue to have an
appetite for NZD.
In addition, the NZD/USD has also been propped up by
very solid demand for NZD/AUD. It appears that a variety
of short-term leverage accounts have been squaring up
short NZD/AUD positions ahead of Thursday’s OCR
Review. The NZD/AUD climbed over 0.9100 yesterday,
but has failed to break above 0.9160 (large stops are
rumoured above this level).
Despite the strong rally seen in the NZD/USD yesterday,
the upward momentum appears to be stalling. NZD/USD
failed to break through 0.8100 last night. Indeed, model
funds and custodial accounts have been noted NZD/USD
sellers. Furthermore, the lacklustre performance of US
equities (S&P500 currently down 1.98%) has also
weighed on carry trade sentiment, and selling of
NZD/JPY has added to the downward pressure on
NZD/USD.
Today the Australian CPI release (due 13:30 NZ time) will
be the main focus. A strong underlying CPI out-turn
(0.8%q/q or greater) will likely heighten speculation about
the RBA raising rates on August 8. Since the RBNZ is
widely expected to hike this week, increased
hawkishness towards the RBA could well prompt another
round of NZD/AUD selling (particularly since the cross
has repeated failed to break above 0.9160).