BNZ Research

Our research team offers expert commentary on economics, foreign exchange, fixed interest and credit, to help inform your organisation’s risk analysis and decision making. 

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Currency Research

NZD/AUD to sustain a higher range

Jason Wong -

In our early October FX forecast update, we had the AUD falling back to 0.71 and NZD to 0.65 by year end, on the premise that the US would press ahead with lifting the tariff rate on $200bn worth of Chinese imports to 25% from Jan 1st and confirm it was extending tariffs early in 2019 to the whole gamut of Chinese imports.

NZD Recovers, Now What?

Jason Wong -

The NZD has been the best performing major developed currency over the past month. After reaching a multi-year low of 0.6425 in early October, a strong rally has seen it rise to as high as 0.6884, a level not seen since June.

NZD Corporate FX Update

Jason Wong -

Our forecasts show the NZD hovering around 0.65 through the next six months, but we aren’t confident enough to declare the downward trend of the past six months over. Much bad news is priced in but the global macro backdrop is challenging.

NZD Downtrend Over?

Jason Wong -

After reaching a low of 0.6425 in early October, the NZD has recovered 1½ cents, largely supported by a softer USD dynamic and better sentiment for emerging market currencies, while a stronger NZ Q3 CPI report helped at the margin.

Headwinds Mount For The NZD

Jason Wong -


The NZD remains under pressure, reaching fresh multi-year lows and on an ominous downward trend that kicked off around mid-April. It’s not yet safe to presume that the downward trend is over. We would need to see a convincing break above 0.6730 to have a little more comfort that the trend over the past five months has been broken and that doesn’t look likely.

NZD Corporate FX Update

Jason Wong -

The NZD’s trend over recent months has looked ominous, with fresh lows made in May, July, August and September. The most recent low near 0.6500 came ahead of President Trump’s decision on further Chinese import tariffs, a threat that has overhung the NZD over the past couple of months. In the event, the more moderate than expected 10% tariff rate to be imposed on a further $200b of Chinese imports was less than half of the possible 25% mooted, and this has provided some near-term support for the NZD.

Economy Watch

Activity Defying Confidence

Doug Steel -

Economic activity has been doing better than weak confidence readings would have you believe. This applies to agriculture as much as it does to the wider economy. Tractor registrations are at their highest level since the 1970s. Sure the outlook has soften a little in some areas, like dairy prices, albeit that this has been partly driven by very strong milk production on generally favourable weather conditions. Lamb prices remain strong.

RBNZ in Summer Hibernation

Stephen Toplis -

We reckon there is a strong argument for interest rate normalisation. New Zealand is at maximum sustainable employment, the output gap is zero and inflation, both headline and underlying, is near 2.0%. Be that as it may, there is clear RBNZ reluctance to shift rates higher and it is fair to say that there is little evidence that inflation is about to get out of control with rates where they are. Consequently, we find ourselves lowering our prospective interest rate track and suggest current market pricing is about right, for now at least.

ANZ Survey: Same Old, Same Old

Stephen Toplis -

There was nothing in today’s ANZ Business Outlook to change our view of the world. And, importantly, we doubt there was anything in it to change the central bank’s perceptions either.

Uptick in Activity

BNZ Research/BusinessNZ -

New Zealand’s services sector experienced a second consecutive improvement in expansion levels, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

Maximum Sustainable Employment Breached?

Stephen Toplis -

We’ve been saying it for some time now. How can the RBNZ seriously contemplate cutting its cash rate (from its present record low) when the economy is in a position of maximum sustainable employment? That’s the view we had when the unemployment rate was 4.4%. Following today’s labour market data it now sits at 3.9%.

NZ Construction Outlook

Stephen Toplis -

We remain hopeful the current growth phase in construction can be extended for some time. The expansion is likely to be dominated by residential building, in particular, multi-unit dwellings. Nonetheless, the headwinds are growing and capacity constraints are becoming more binding both of which will limit the pace of the future expansion. And for those trying to make money in the sector, frustration will grow further as staffing issues become more problematic and cost pressures increase.

Disconcerting Undertones

Stephen Toplis -

There was enough in today’s data to support our view that the New Zealand economy will hang together despite the headwinds that it is facing. But there is gathering evidence that those headwinds are blowing relatively strongly and, in some cases, from unexpected directions. This will leave us pondering the prospect that the wheels might fall off, particularly were we to be hit by either some form of external shock or a very dry summer. Nonetheless, now is not the time for the RBNZ to react to those risks by cutting interest rates, particularly when pricing data suggest a diametrically opposite course of action.

CPI Target Achieved

Stephen Toplis -

Our central forecasts still have rate increases penciled in for the second half of next year. We won’t thump the table on this as any number of things could upset the apple cart between now and then. Nonetheless, we will continue to push the message that the hurdle for a rate cut is much higher than many care to believe, and those who are quick to dismiss there being any chance of a rate hike do so at their peril.

Soft Service

Craig Ebert -

New Zealand’s services sector experienced a slight increase in expansion during September, although still below its long run average, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

Hanging On

BNZ - BusinessNZ -

New Zealand’s manufacturing sector remained within a tight and low level of expansion for September, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).

Robertson Rightly Plays Down Fiscal Fillips

Craig Ebert -

The Half-year Economic and Fiscal Update (HYEFU). This is due to be published around mid-December. To our mind, it’s still shaping up to be a difficult balancing act, conscious of the fact the 2017/18 accounts were not quite as buffed as they looked.

Meat and Milk Volumes Influencing Prices

Doug Steel -

It’s a good time of year to think about the meat and dairy export volume outlook for the coming 12 months, as the new season gets going. What is happening on farm now will have a large influence on the quantity sold ahead. Meantime, we nudge our 2018/19 milk price forecast down to $6.30 (from $6.60) having discussed the downside risks for some time.

QSBO Highlights Rising Cost Pressures

Stephen Toplis -

Today’s Quarterly Survey of Business Opinion was a lot better than it could have been. Fears were building that business confidence may have been on an unstoppable slide ultimately resulting in much lower GDP growth, a weaker NZD and a cut in the cash rate. Instead, the data seem to suggest that the trough in business expectations might be behind us.

RBNZ Keeps Its Options Open on the OCR

Craig Ebert -

While the RBNZ has retained its low and steady view on the cash rate, right out to 2020, practically much still depends on where GDP growth, and CPI inflation, goes over the coming year. Also bear in mind the relevance of labour market data to OCR judgements.

NZ Confidence Consistent With National Income Growth

Stephen Toplis -

We are on record as saying that we do not believe the economy will slump in the manner that business sentiment has been suggesting. We have also said that inflationary pressures are likely to be sustained even as growth moderates. On this basis, you would have thought that we would have jumped at today’s lift in business confidence and pricing intentions as a validation of our view. To an extent we do but, we have to say, that, at the same time, we are astounded by some of the exaggerated commentary suggesting that rebounding business confidence would remove concerns about the economy.

GDP Strengthens Our Case Against OCR Easing

Craig Ebert -

It is really important to note that the RBNZ stressed that the main reason it became more dovish when it released its August MPS was that GDP had surprised on the downside (to the tune of 0.6%), which saw the Bank’s excess demand measure (the output gap) reduced by the same amount. Now, GDP has surprised by an equivalent amount to the other side. So, in theory at least, the Bank will need to revise up its estimate of the output gap quite a bit too.

Economy Watch - External Imbalance Widens Further

Stephen Toplis -

• Current account deficit rises to 3.3% of GDP
• Deterioration in net export volumes to blame
• Terms of trade decline will add more pressure
• NZD negative at the margin
• Nothing in the data to dent our Q2 GDP forecast
New Zealand’s external accounts have continued their trend deterioration, which began in 2017. Back in December 2016 the current account deficit hit a low of 2.2% of GDP. That has now climbed to 3.3% of GDP and, by our expectation, will be through 4.0% by mid 2019.

Lacking Service

BNZ/Business NZ -

New Zealand’s services sector continued to exhibit lower levels of expansion during August, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

Financial Markets Wrap

NZD Recovers Strongly in November

Jason Wong -

• The NZD bounced back strongly, up 5½% for the month
• Supported by optimism on US-China trade relations, a less hawkish Fed outlook, and positive domestic data
• NZ rates higher against a backdrop of lower global rates

NZD Resilient In October As Equity Markets Tumble

Jason Wong -

• Global equity markets tumbled in October as risk appetite collapses
• Against that backdrop, the NZD was resilient, down only 1½%, while the TWI was flat
• US Treasuries weren’t a safe-haven as rates rose across the curve, while NZ rates fell

NZD Flat In September

Jason Wong -

NZD reached a multi-year low during September but ended the month flat...Yen under pressure, sees higher NZD/JPY but other NZD crosses flat...Higher interest rates for the month, while NZ-US rate spreads reach a record low

Interest Rate Strategy

Outlook for Borrowers: Post-November MPS

Nick Smyth -

RBNZ Monetary Policy Outlook
At the November MPS, the RBNZ reiterated that it expected to keep the OCR on hold into 2020. It said the timing and direction of any future OCR move would be data dependent.

Mind the Trans-Tasman Gap: NZ-AU spreads to widen further

Nick Smyth -

NZ rates underperform significantly over the past week – this move ultimately has further to go
Over the last week, NZ 2y swap has increased 15bps, 5y by 26bps and 10y by 23bps. The catalyst for this move was the much larger-than-expected fall in the NZ unemployment rate (3.9% v. 4.4% exp.), to its lowest level since 2008. We see the sharp move higher in NZ rates as largely correcting for the large outperformance of NZ vs. other markets after RBNZ Governor Orr suggested the possibility of rate cuts, which now look remote. Ultimately, we think the NZ move has further to go, and there is scope for the market to price a steeper RBNZ tightening path, albeit rates may now consolidate for a period after such a large move. See our note from last week on the medium-term rationale for paying NZ swaps.

Targeting Wider NZ Swap Spreads Ahead Of Q1 Maturity ‘Wall’

Nick Smyth -

• We have been highlighting the supportive supply backdrop for NZGBs and high grade NZ fixed income for some time.
• This culminates in Q1, when there will be record maturities across NZGBs, LGFA and SSA (over $15b in total). Ahead of this, there has been very strong demand at recent NZDM tenders.
• Swap spreads have tended to widen in the months preceding recent NZGB maturities. Additionally, swap spreads have shown a seasonal tendency to widen in December.
• We would look to use a pull-back in swap spreads ahead of December to position for widening. Our model, in which net supply is a key variable, points to wider 10y swap spreads ahead.
• We target a long position in the NZGB 4.5% 2027 against swap at an I-spread of -28bps or higher.

Making the (medium-term) case for paying NZ swaps

Nick Smyth -

The NZ rates market has been the star performer in 2018. It is the only developed rates market with a lower 10 year swap rate (almost 30bps) than at the end of last year. Below, we outline the medium-term case for scaling into paid positions in NZ swaps.

Risk of a squeeze? Supply and demand trends in NZGBs and high grade NZ fixed income

Nick Smyth -

A theme we have been highlighting for some time is the forecast negative net issuance of NZ government securities over the coming years. At the Budget in May, the NZDMO forecast that net supply of nominal NZGBs was expected to be around -$4b by the end of June 2019 and, in addition, the stock of Treasury bills was forecast to be cut by $2b. The combined $6.2b reduction in nominal NZ government stock outstanding would be the largest on record (see Chart 1). It would amount to an almost 10% reduction in the stock of nominal government securities outstanding over the fiscal year.

Outlook for Borrowers: Post-September OCR Review

Nick Smyth -

At the September OCR Review, the RBNZ said it expected the OCR to remain at an accommodative setting for a considerable period and reiterated that the next move could be either up or down. The message was very similar to the one presented in the August MPS statement. There has been a modest decline in NZ rates today, but mainly in response to overnight moves in the US

Trade Idea: NZ-US 5y5y Widener

Nick Smyth -

NZ-US spreads have tightened aggressively across the curve over the past 12 months. The NZ-US 1y1y spread has declined from +60bps to -105bps, as Fed tightening expectations have increased and RBNZ rate cut expectations have built. Longer-dated NZ-US forward spreads have also tightened aggressively. The NZ-US 5y5y spread has tightened almost 100bps over the past 12 months, to near record tight levels – see Chart 1.

Markets Outlook

Manufacturing Clobbers GDP

BNZ Research Team -

It appears that the pressure on the Reserve Bank to hike interest rates any time soon is dissipating. Not only are petrol prices and the NZD depressing short term inflation measures but it now also looks like growth could come in on the lower side of RBNZ expectations.

Economic Growth Remains Defiant

BNZ Research Team -

It seems to us that the economy continues to forge ahead in a far more robust fashion than many of the business confidence indicators might have you believe. There’s no doubt confidence is being rocked by a combination of uncertainty, capacity restrictions and margin pressure. But actual economic output continues to grow. With this in mind, we will be watching this week’s suite of partial indicators for confirmation that Q3 GDP held up. At this stage we are forecasting an increase of 0.7% for the quarter, 2.9% for the year. This is the same pick as the RBNZ.

BNZ Markets Today

Jason Wong -

Currency markets are treading water ahead of the important Xi-Trump meeting this weekend. US equities are modestly lower through the morning session, while the US 10-year rate is back near the NZ close of 3.03% after earlier breaking below 3%.

Q3 Retail Volumes Pinched By Petrol Prices

BNZ Research Team -

All things considered, we are not freaked out by the apparent stalling in Q3 retail spending. Indeed, when thinking through the various timing influences, we probably need to bump up our expectation on Q4 retail trade growth.

More Evidence of Economic Momentum

BNZ Research -

The big news for the week has already been released. The Performance of Manufacturing (PMI) and Performance of Services indices (PSI) have bounced relatively strongly. We’d been concerned that they might go the same way as business confidence and foretell a significant economic slowdown. Had this been the case our growth forecasts would have been threatened. Fortunately, for now at least, the performance indicators are sufficiently strong for us to maintain our view that GDP can continue to expand at a near potential rate for a while longer yet. For the record, we are forecasting GDP growth of 2.9% for calendar 2018 and 2.8% for next year.

Oil Caps CPI, Replenishes Disposable Income

BNZ Research Team -

Bear in mind there is a full three months’ worth before the next RBNZ policy meeting; the 13 February MPS. That’s a long time between drinks. But already, the trajectory on the NZ CPI is being pruned, by the latest wave of reversal in international oil prices.

When Perception Isn’t Reality

Craig Ebert -

It’s a moot point which way the numbers go in Wednesday’s ANZ business survey. But there is an argument that from where its headline results already sit, they will be hard pressed to shock the market now. This is particularly so, with a lot of the hard data on the NZ economy defying the worst of the recent business survey insinuations. Speaking of which, there is a lot of hard data on the NZ economy due this week – albeit none of it top-tier.

No Holiday For Expanding Trade Deficit

BNZ Research Team -

It is a short week, given yesterday’s Labour Day holiday. It is also a week short on data, with Thursday’s merchandise trade figures for September the only piece with any potential to pique the market’s interest. To be sure, a monthly trade release is unlikely to substantially alter views. But we think the deteriorating trend in the nation’s external trade flows is well worth paying attention to. It is something we have been monitoring for a while and it’s not just higher oil prices in play.

(More Than) Fuel to the Inflation Flickers

BNZ Research Team -

It would be easy to dismiss tomorrow’s likely strong-looking Q3 CPI as simply soaring petrol prices. Too easy, we’d say. The way we prefer to view it, CPI inflation is firming up from an underlying basis, with headline inflation outcomes likely to reinforce this tendency. This will become more evident over the coming many quarters, with tomorrow’s CPI just a step in that direction.

A Little Data to Cross-Check Some Big Stories

BNZ Research Team -

The coming week’s New Zealand data are relatively minor. But they could have important things to say about some key topics. Like the Food Price Index re Q3 CPI inflation; like electronic transactions on the fortitude of consumer spending; like the PMI as a cross-check on the QSBO’s messages of manufacturing softness, and like tomorrow’s 2017/18 Crown accounts with respect to the government being on track with its self-imposed fiscal targets.

Capacity Issues Undermining Business Confidence

BNZ Research Team -

The QSBO’s net confidence measure is prone to print even more negatively than it did in Q2 (-20). This will no doubt further aggravate political debate. But probably at the expense of appreciating the many things that are disconcerting the business sector at the moment, not just government policy. Like rising costs, related to chronic capacity constraints.

Ironing Out the Rate-Cut Wrinkle

BNZ Research Team -

At Thursday’s OCR review, the Reserve Bank will need to look past recently robust local data, in order to retain its up-or-down rhetoric with respect to the cash rate. Which we think it will do. This is a reminder that the August MPS alternative scenarios were pitched around how GDP and the CPI might travel into 2019, rather than anything immediate. These will take time to take shape, or not.

GDP Preview and the Week Ahead

BNZ Research -

Thursday’s Q2 GDP report will hold most attention across the domestic data on show this week. Despite its usual historic date stamp, this week’s growth figures will be important to see how the economy has been performing in light of low business confidence and ahead of fiscal stimulus. We think the economy has held up reasonably well, and better than the RBNZ forecast, even with a dent from repairs and maintenance and some large operations.

Markets Today

BNZ Markets Today

Nick Smyth -

Events Round-Up
NZ: ANZ Truckometer - heavy (m/m%), Nov: -1.9 vs. 4.6 prev.
NZ: Retail card spending (m/m%), Nov: -0.4 vs. 0.3 prev.
AU: NAB business conditions, Nov: 11 vs. 12 prev.
AU: House price index (q/q%), Q3: -1.5 vs. -1.6 exp.
UK: Unemployment rate, Oct: 4.1 vs. 4.1 exp.
UK: Employment change (k), Oct: 79k vs. 25 exp.
UK: Average weekly earnings ex-bonus (y/y%), Oct: 3.3 vs. 3.2 exp.
GE: ZEW survey expectations, Dec: -17.5 vs. -25 exp.
US: NFIB small business optimism, Nov:104.8 vs. 107 exp.
US: PPI ex food and energy (y/y%), Nov: 2.7 vs. 2.5 exp.

Good Morning
Market sentiment has improved somewhat over the past 24 hours following news that the US and China have had high-level dialogue on trade and reports that China would cut tariffs on imported US cars. Confidence remains fragile however and US equities have already pared most of their earlier gains. The GBP remains weak amidst speculation of a leadership challenge to PM May. The NZD is unchanged from this time yesterday, but higher on most of the crosses.

BNZ Markets Today

Nick Smyth -

The British pound was hammered overnight after Theresa May unexpectedly postponed the parliamentary vote on her Brexit deal. With the clock ticking to the March 29th exit date, the market is concerned about the growing risk that the UK could slide into a no-deal Brexit. The news exacerbated already fragile risk sentiment, with US equities falling again, although they have recovered somewhat over the past hour or so. The NZD has outperformed amidst the risk-off backdrop, and the NZD/AUD has made a fresh 18-month high.

BNZ Markets Today

Nick Smyth -

The British pound was hammered overnight after Theresa May unexpectedly postponed the parliamentary vote on her Brexit deal. With the clock ticking to the March 29th exit date, the market is concerned about the growing risk that the UK could slide into a no-deal Brexit. The news exacerbated already fragile risk sentiment, with US equities falling again, although they have recovered somewhat over the past hour or so. The NZD has outperformed amidst the risk-off backdrop, and the NZD/AUD has made a fresh 18-month high.

BNZ Markets Today

Nick Smyth -

US equities fell sharply again on Friday amid a renewed bout of risk aversion. The risk-off backdrop pushed US bond yields lower, with a weaker-than-expected payrolls report and dovish comments from Fed Governor Brainard adding to the downward pressure. Currencies saw relatively little movement, although the NZD drifted lower on the day. Finally, OPEC announced a larger than expected 1.2m barrels per day supply cut, which boosted oil prices.

BNZ Markets Today

Jason Wong -

Events Round-Up
AU: Trade balance ($m), Oct: 2316 vs. 3000 exp.
AU: Retail sales (m/m%), Oct: 0.3 vs. 0.3 exp.
GE: Factory orders (m/m%), Oct: 0.3 vs. -0.4 exp.
US: ADP employment chg (k), Nov: 179 vs. 195 exp.
US: Trade balance ($b), Oct: -55.5 vs. -55.0 exp.
US: ISM non-manufacturing index, Nov: 60.7 vs. 59.0 exp.

Good Morning
Risk appetite has taken another hit which sees safe-haven currencies like JPY and CHF outperform, while commodity currencies have underperformed. Global equity markets are a lot lower, while US 10 year rates are down to a fresh 3-month low.

BNZ Markets Today

Jason Wong -

Events Round-Up
NZ: Volume of building work (q/q%), Q3: 0.7 vs. 2.3 exp.
AU: GDP (q/q%), Q3: 0.3 vs. 0.6 exp.
AU: GDP (y/y%), Q3: 2.8 vs. 3.3 exp.
CH: Caixin PMI services, Nov: 53.8 vs. 50.7 exp.
UK: Services PMI, Nov: 50.4 vs. 52.5 exp.
CA: Bank of Canada O/N rate (%): Dec: 1.75 vs. 1.75 exp.

Good Morning
Trading conditions are quiet with the US on holiday to mark the death of President George HW Bush. The AUD and CAD are the weakest performers after weak data and a dovish monetary policy statement respectively, while GBP is better bid after a poor run recently.

BNZ Markets Today

Jason Wong -

The risk-on rally post the Xi-Trump meeting hasn’t lasted long, with risk assets reversing course. Equities and bond yields are lower and, overnight, commodity currencies have drifted lower, while JPY is the best performing major currency. Brexit woes continue to impair GBP.

BNZ Markets Today

Jason Wong -

The “highly successful” Xi-Trump meeting at the weekend triggered an improvement in risk sentiment to begin the new week, seeing equity markets rise and commodity currencies outperform. US 10 year rates opened higher, but have fallen away to be little changed just under 3%.

BNZ Markets Today

Jason Wong -

Trading on Friday was fairly subdued as markets awaited the highly anticipated Xi-Trump meeting held at the weekend. US equities were stronger, US rates were lower, while the NZD closed near its recent highs.

BNZ Markets Today

Jason Wong -

Currency markets are treading water ahead of the important Xi-Trump meeting this weekend. US equities are modestly lower through the morning session, while the US 10-year rate is back near the NZ close of 3.03% after earlier breaking below 3%.

BNZ Markets Today

Nick Smyth -

US equities have surged higher and the USD has weakened after Fed Chair Powell said interest rates were “just below” neutral, a marked change from his assessment last month. Short-end Treasury yields have fallen and the curve steepened.

BNZ Markets Today

Nick Smyth -

Market movements have been reasonably modest overnight as we await Fed Chair Powell’s speech tomorrow and the Trump-Xi meeting on the weekend. There was little reaction to a speech from Fed vice Chair Clarida overnight. The USD is broadly higher once again, although the NZD has bucked the trend and is up slightly on the day.

BNZ Markets Today

Nick Smyth -

Risk appetite has improved overnight, with equities and US bond yields rising, and crude oil recovering some of its large falls on Friday. Signs of compromise from the Italian government over its budget plans helped boost sentiment, and led to a sharp drop in Italian yields. Currency moves have been modest as we await a barrage of Fed-speak over the remainder of the week and the Trump-Xi meeting at the G20 on the weekend.

BNZ Markets Outlook

Nick Smyth -

US equities ended the week on a soft note and US Treasury yields declined slightly, although volumes were light on a shortened trading day in the US. The EUR weakened, and the USD strengthened, after another batch of weaker than expected Eurozone PMI surveys. Meanwhile, oil prices remained in free-fall due to concerns about oversupply in the market.

BNZ Markets Today

Jason Wong -

Markets are quiet with the US on holiday. The only notable movement has been strength in GBP after a draft UK and EU political declaration was published. The NZD was modestly weaker in local trading yesterday and has sustained that move overnight.

BNZ Markets Today

Jason Wong -

Market sentiment has perked up leading into the US Thanksgiving holiday tonight, seeing global equities higher, a modest rise in global rates and supporting commodity currencies.

BNZ Markets Today

Doug Steel -

Equities lurch lower again, denting risk appetite. The US dollar has pushed higher across the board, arresting its slide over the past week. Meanwhile, the plunge in oil prices continues. Little change in yields.

BNZ Markets Today

Brendan Marsh -

The week ahead holds little in store in terms of key data releases or central bank meetings and includes the US out later in the week for Thanksgiving, however, there’s still been a couple of pressure points albeit from familiar sources for markets to respond to at the start of an abbreviated week.

BNZ Markets Today

Jason Wong -

The USD and US Treasury yields fell after comments from Fed Chair Clarida were interpreted as dovish. That helped the NZD to continue to power on up, and supported at the end of the week by further optimism on US-China trade talks after some positive comments by President Trump.

BNZ Markets Today

Jason Wong -

Brexit has been the key focus for the market and it’s not looking good for the UK, with GBP trashed again and UK gilt yields plunging, dragging down US Treasury yields. After a bad start, US equities are now back to square. The NZD continues to perform well, making further gains overnight.

BNZ Markets Today

Doug Steel -

Relatively calm trading conditions prevailed for most of the night, with generally limited market moves, before negative Brexit headlines late in the session saw a risk off tone take hold. Equity markets oscillated around flat before pressing lower, likewise US yields. Oil prices have recovered a small amount of recent heavy losses. The US dollar sits around 0.2% lower on the indices we track.

BNZ Markets Today

Jason Wong -

More optimism on US-China trade talks and a Brexit deal have supported risk currencies like the NZD, while GBP has been the top performer. US equities are stronger, while US Treasury yields haven’t responded to the better risk backdrop.

BNZ Markets Today

Nick Smyth -

It’s Veteran’s day holiday in the US, but US equity markets have remained under downward pressure to start the week, especially the tech sector. Brexit remains in focus too. Speculation of more UK cabinet resignations is increasing concern that Theresa May won’t be able to pass a Brexit deal through parliament, and this has weighed again on the GBP and EUR. On the flip side, the USD has extended its recent gains, with the various USD indices making fresh 18 month highs. The NZD has held up reasonably well, and is down only marginally against the USD overnight.

BNZ Markets Today

Nick Smyth -

Equities ended last week on a soft note, led by the tech sector. Amidst a backdrop of more cautious risk sentiment, US Treasury yields declined and the US dollar rose – the DXY is almost back to 18-month highs. Locally, NZ rates rose again on Friday, although there were some signs of receiving interest finally emerging after a very volatile week.

BNZ Markets Today

Jason Wong -

Financial markets have been quiet ahead of the FOMC statement due 8am NZ time. Overnight currency moves have been insignificant, US equities are flat and US Treasury rates are little changed.

BNZ Markets Today

Jason Wong -

The USD is modestly softer across the board after the in-line result of the US mid-term elections, US Treasury yields are down slightly, driven by the long end, and US equities are stronger. The NZD has been the star performer following the surprising strength in labour market data yesterday.

BNZ Market Today

Jason Wong -

Markets are treading water ahead of today’s US mid-term elections with volumes well below normal. GBP has shown another modest gain to make it the strongest currency over the past 24 hours on a day where nothing much has happened. US equities and Treasury rates are slightly higher.

BNZ Markets Today

Jason Wong -

It has been an uneventful start to the week for financial markets ahead of a busy week, which includes the US mid-term elections and policy meetings by the Fed, RBA and RBNZ. Currency movements have been small apart from GBP which has swung around on Brexit headlines. After recent volatility in equity markets, overnight movements have been insignificant by comparison. US rates are slightly lower after last week’s big sell-off in Treasuries.

BNZ Markets Today

Nick Smyth -

A stronger than expected US non-farm payrolls report led to a sharp rise in US Treasury yields and an appreciation in the USD against G10 currencies. Emerging market currencies and equities performed strongly on reports that President Trump had instructed his staff to draft an outline for a possible trade deal with China, although White House advisor Kudlow later tried to cool expectations. Higher US bond yields weighed on US equities, which had initially risen on optimism for a US-China trade deal.

BNZ Markets Today

Nick Smyth -

After making fresh highs yesterday, the USD has moved sharply lower across the board over the past 24 hours. The NZD is the best performing currency in the G10, up more than 2%. Meanwhile, equities have moved higher again, helped by some more positive comments by President Trump on China.

BNZ Markets Today

Nick Smyth -

After what has been a terrible month for global equities, markets ended October in risk-on mode. US and European equity markets have risen strongly and US Treasury yields have moved higher. The USD has continued to push higher, helped by better than expected US data.

BNZ Markets Today

Nick Smyth -

US equities have moved modestly higher overnight, although the market remains volatile and risk sentiment cautious. Facebook’s earnings later this morning will be a key focus. The NZD and AUD have moved higher over the past 24 hours after President Trump discussed the possibility of a “great deal” with China.

BNZ Markets Today

Nick Smyth -

US equities have staged something of a recovery overnight, although the tech sector has again lagged. The more positive tone to risk assets has helped Treasury yields push a little higher and the JPY underperform. The NZD is little changed against the USD from Friday night’s close, although it has made gains on all the crosses.

BNZ Markets Today

Jason Wong -

US equities had another rough day, sending US Treasury rates lower, while JPY was the strongest of the majors in the risk-off environment. The NZD saw a couple of forces on Friday, with the net result being little change after a temporary shunt downwards.

BNZ Markets Today

Jason Wong -

US equities have recovered strongly after yesterday’s rout, putting some modest upward pressure on US Treasury yields, while the USD remains well bid. The NZD has remained tightly range-bound.

BNZ Markets Today

Jason Wong -

US equities continue to fall, putting downward pressure on global rates. A hawkish Bank of Canada saw a stronger CAD, but otherwise the USD is generally stronger, seeing the NZD weaken a little.

BNZ Markets Today

Jason Wong -

On a day with little news, global equities have slumped again and US Treasury yields have followed the move lower. Interestingly, currency market movements have been modest, with the risk off mood seeing JPY modestly bid while the NZD range trades.

BNZ Markets Today

Jaso Wong -

The new week has begun with weaker risk sentiment prevailing, with commodity currencies underperforming and US equities in negative territory.

BNZ Markets Today

Jason Wong -

A risk-off mood has prevailed overnight. Against that backdrop JPY is outperforming while the NZD continues to remain uncorrelated with risk appetite, as we’ve seen during the recent equity market sell-off, and has remained poised. US and German 10-year rates are lower.

BNZ Markets Today

Jason Wong -

Against a backdrop of a stronger USD the NZD is slightly weaker this morning. Against a backdrop of lower European rates, US Treasuries are fairly flat.

BNZ Markets Today

Jasono Wong -

The NZD has sustained the gains made after stronger-than-expected CPI data yesterday and heads the daily leaderboard. US and European equity markets show strong gains, while a lack of pulse is evident in bond markets, with UST yields little changed.

BNZ Markets Today

Jason Wong -

US equities have opened the new trading week on a calmer note, although it’s too early to declare that the period of heightened volatility is over. UST yields are trading a very tight range, while the USD has weakened across the board and the NZD has been the strongest of the majors.

BNZ Markets Today

Jason Wong -

Friday night saw another choppy trading session on Wall Street and the net result was a decent rally. Volatility in other asset classes remained subdued, with only modest changes in currencies and little change in US Treasuries.

BNZ Markets Today

Jason Wong -

Following yesterday’s rout in global equities a risk-off tone remains evident, with the S&P500 making further losses overnight, while US 10-year Treasury yields are flat to
down slightly. Despite the fall in risk appetite, the NZD has ended up one of the better performers as short-positions were likely pared.

BNZ Markets Today

Jason Wong -

US and European equity markets have fallen significantly, against a backdrop of little news. Movements in currency and bond markets have been well contained, with the NZD tracking sideways and the US 10-year rate up 2bps.

BNZ Markets Today

Jason Wong -

Market movements have been modest, with small changes in currencies, flat equity markets and the US 10-year rate nudging lower.

BNZ Markets Today

Jason Wong -

The new week has begun as last week ended, with risk sentiment souring, albeit with holidays across the US, Canada and Japan helping contain market volatility. Under the circumstances the NZD and AUD have held up well, but this follows the significant falls for both currencies last week.

BNZ Markets Today

Jason Wong -

The NZD and AUD continued to probe fresh multi-year lows, following the US employment report which showed a tightening labour market. The report also saw the US 10-year Treasury rate rise to a fresh 7-year high.

BNZ Markets Today

Nick Smyth -

AU: Trade balance, Aug: $1600m vs. $1450m exp.
US: Jobless claims, Sep 29: 207k vs. 215k exp.
US: Factory orders (m/m%), Aug: 2.3 vs. 2.1 exp.
US: Durable goods orders (m/m%), Aug (final): 4.4 vs. 4.5
exp.
After a large move higher on Thursday, US Treasury yields
have stabilized somewhat overnight. Global bond yields
have continued to rise, although NZ rates continue to lag
the moves elsewhere. US equities have come under
pressure overnight, alongside emerging markets, from the
rise in yields. Meanwhile, the NZD fell to its lowest level
since March 2016.

BNZ Markets Today

Nick Smyth -

The 10 year US Treasury yield moved to its highest level since 2011 after an extremely strong non-manufacturing ISM survey and an upside surprise to the ADP employment report. Expectations are now for a very strong payrolls report on Friday. The USD is stronger across the board on the back of the US data, and this has pushed the NZD back down towards 0.6535.

BNZ Markets Today

Nick Smyth -

Risk appetite has been supported by news the US and Canada have come to a last minute deal on a revised NAFTA agreement. The S&P500 has moved close to a record high, although Treasury yields have been little moved. The NZD is again little changed, with all eyes on the QSBO released later this morning.

BNZ Markets Today

Nick Smyth -

Italy is back in the headlines after the populist coalition government announced it was targeting a 2.4% fiscal deficit, setting itself on a collision course with the EU. Italian bond yields moved sharply higher, while European equities and the euro fell. The bout of risk aversion was reasonably contained to Europe though, with little contagion to US equities or US Treasury bonds, both of which were unchanged on the day; the NZD was also unchanged on Friday. Over the weekend, the US and Canada were engaged in last minute talks over a revised NAFTA deal, with the self-imposed deadline being midnight, 30th September.

BNZ Markets Today

Jason Wong -

The USD is stronger across the board which sees the NZD down to its lowest level this week around 0.6620, but steady on most of the crosses. US 10-year rates are steady at 3.05%.

BNZ Markets Today

Jason Wong -

Financial markets were typically quiet heading into the FOMC policy announcement this morning. The Statement and the Fed’s projections were in line with expectations, limiting any market reaction. For the day, US Treasury rates are slightly lower, while the USD is flat.

BNZ Markets Today

Jason Wong -

Markets are treading water ahead of the FOMC’s policy announcement less than 24 hours away now. Market movements have been insignificant but US 10-year Treasuries have nudged up to fresh highs.

BNZ Markets Today

Jason Wong -

It has been a fairly sleepy start to the week, with the NZD and AUD on a slightly softer note, not helped by lingering US-China trade war concerns, while GBP has recovered some of its big loss on Friday. Global rates are higher, with the market perceiving ECB Chair Draghi’s comments as more hawkish.

BNZ Markets Today

Jason Wong -

It was an uneventful end to the week, with flat US equities and Treasury yields and only modest changes in the major currencies, apart from GBP which showed a chunky fall on Brexit worries.

BNZ Markets Today

Jason Wong -

Positive risk sentiment sees JPY and USD under pressure, while the NZD has made further gains overnight, adding to the move after stronger than expected GDP figures. US Treasury rates have consolidated around recent highs.

BNZ Markets Today

Jason Wong -

Against a backdrop of improved sentiment for emerging market currencies, the NZD and AUD continue to show signs of recovery, with both reaching their highest levels for the month. These moves come despite US rates tracking higher.

BNZ Markets Today

Nick Smyth -

Yesterday’s official announcement that the US would impose tariffs on $200b Chinese imports has been largely shrugged off by markets. US and Chinese equities have risen while the 10 year US Treasury yield broke above 3%, to its highest level since May. The NZD and AUD have outperformed against a risk-on backdrop.

BNZ Markets Today

Nick Smyth -

The week has started off with a slightly risk-off tone, with Chinese and US equities falling (the latter led by the tech sector). So far, the market appears to have put more weight on the likely cancellation of US-China trade talks than the lower 10% tariff rate that the WSJ reported Trump had opted for. Trump said an announcement on Chinese tariffs would come later this morning, after the market close. The USD reversed its gains from Friday and is trading towards the lower end of its recent trading range.

BNZ Markets Today

Nick Smyth -

On Friday, the US 10 year Treasury yield hit 3% for the first time since the start of August after another round of robust US economic data. The USD was stronger on the day, but remains contained within a broader range. Over the weekend the WSJ reported that President Trump would announce tariffs of 10%, lower than the originally planned 25%, on $200b of Chinese imports, likely either today or tomorrow. It’s possible that risk assets could bounce on the news of a lower tariff rate.

BNZ Markets Today

Nick Smyth -

US equities rose and US Treasury yields fell modestly after a lower than expected US core CPI release. The USD weakened after the CPI data too, although the NZD is not
much higher than this time yesterday. There was little new information from both the ECB and BoE meetings, but the Turkish central bank raised its one week repo rate by a whopping 625bps, which has helped support EM currencies.

NZ At A Glance

New Zealand At A Glance

Doug Steel -

Economic growth is expected to remain near potential, having slowed from an above-trend pace over recent years. Supply issues such as physical capacity constraints, infrastructure bottlenecks, a low unemployment rate, and declining working age population growth are material factors acting against faster expansion. Associated cost pressures coupled with high energy prices and a falling NZD sees business margins under pressure. This, and some concern around government policy, has resulted in weak business confidence. It is a risk to investment. Meanwhile, rising costs are driving some upward pressure on inflation, although the RBNZ seems in no hurry to move interest rates in either direction. A possible El Nino weather pattern over coming months is a risk to pastoral agriculture and the type and cost of electricity generation.

Rural Wrap

Activity Defying Confidence

Doug Steel -

Economic activity has been doing better than weak confidence readings would have you believe. This applies to agriculture as much as it does to the wider economy. Tractor registrations are at their highest level since the 1970s. Sure the outlook has soften a little in some areas, like dairy prices, albeit that this has been partly driven by very strong milk production on generally favourable weather conditions. Lamb prices remain strong.

Meat and Milk Volumes Influencing Prices

Doug Steel -

It’s a good time of year to think about the meat and dairy export volume outlook for the coming 12 months, as the new seasons get going. What is happening on farm now will have a large influence on the quantity sold ahead. Meat volumes look set to drift lower over the coming 12 months, while milk production is expected to bounce a bit following three years of decline. This will have some influence on prices. Lamb prices are expected to remain elevated over the coming season, while beef and milk prices are forecast to ease.