News and views The New Zealand dollar begins the week higher on the back of
a broadly weaker US dollar. The NZD sagged below 0.7850 earlier on Friday,
after retail sales figures for December suggested that rising food and fuel
prices are starting to eat into household spending. Offshore investors were
noted buyers overnight, sending the NZD back above 0.7900, though a small
bounce in the US dollar early this morning took the NZD off its highs.
The Australian dollar also gained overnight, but there was
more of a sense of being dragged higher by the NZD. The cross rate fell below
0.8700 after the retail sales figures on Friday, but it has yet to convincingly
break out of its recent ranges, despite sharp swings in economic momentum and
interest rates in the AUDâ€™s favour.
The US dollar fell after manufacturing and consumer
confidence plunged sharply in February. The normally up-beat NY Fed factory
survey dropped from +9.0 to â€“11.7, with the orders, shipments and jobs indices
all turning negative. On top of that, the University of Michiganâ€™s consumer sentiment index plunged
from 78.4 to 69.6 (the lowest since 1991) in its preliminary reading, with both
expectations and the current measure sharing in the weakness. These are surveys
rather than hard activity data, but if they are to be believed, they point to
an increased risk that the US economy is closer to recession than
policy-makers are publicly admitting.
In contrast to the weak NY factory
survey, the official
industrial production figures for January rose 0.1%, pointing to continued
modest growth, though weakness in autos meant manufacturing was flat. The other
major data was a sharp 1.7% jump in import prices in January, partly due to oil
prices, although a 0.6% rise in the ex-petroleum measure suggests that US
dollar weakness might also be showing up in the data.
The pound went against the trend in the major
currencies, falling from 1.9720 to 1.96 against the USD. The UK government
nationalised troubled bank Northern Rock after deciding that the takeover bids
from private companies were inadequate; however, the UK market remains plagued
by speculation that there are more bank failures to come.
Canadian auto sales rose 4.8% in December, stronger than
StatCan guidance that the rise would be 3%. The January guidance was for a
strong outcome, though no number was given. However, manufacturing shipments plunged
3.4% for the month. The reading was compounded by auto plant shutdowns, but
still indicative of factory sector exposure to the weaker US economy.
Outlook Wobbly credit markets have kept
investors on edge in recent weeks, and we suspect this has been the main
barrier to a break higher in the New Zealand dollar. With investment banks
heading into the earnings reporting season, there is the potential for more
worrying news in coming weeks, even after the â€˜big bathâ€™ writedowns that many
took in the previous quarter. Demand from local exporters and Japanese
investors, and the residual appeal of yield spreads that continue to reach
record highs, are likely to provide support within recent ranges.
Locally, itâ€™s largely second-tier
releases before the March MPS, though the market will still no doubt
comb through these for any signs of weakness. Even then, this week is
especially sparse, with credit card spending (Thurs) the only release of note.
For now, we would treat the NZD as a 0.77-0.80 range trade, and buy on any dips
toward the lower end of the range.
Upcoming Events Date Country Release Last Forecast 18 Feb US Presidentâ€™s Day holiday Jpn Dec Tertiary Index 0.1% -0.2% UK Feb House Prices %yr 3.4% â€“ 19 Feb Aust RBA Assist. Gov. Edey Speech ( AEDT) RBA Minutes of Feb Meeting Jan Merch Imports AUDbn 15.7 â€“ US Feb NAHB Survey 19 19 Fedspeak: Stern Can Jan CPI %yr 2.4% 2.3% Jan CPI Core %yr 1.5% 1.4%
Latest Research Papers/Publications â€¢ NZ Q4 Retail Sales Review (15
February) â€¢ The rules have changed (14
February) â€¢ NZ Interest Rate Focus (12
February) â€¢ NZ Weekly Forex Outlook (11
February) â€¢ NZ Q4 HLFS Review (7 February) â€¢ NZ Q4 Wages Review (5 February) â€¢ NZ Weekly Forex Outlook (4
February) These papers/publications are
available on Online Research on
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