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Wednesday September 18, 2013 - 20:43:56 GMT
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NZ Morning Thoughts - FX & IR

NZ Morning Thoughts - FX & IR

Imre Speizer

 

The Federal Reserve refrained from tapering its QE program - a major surprise for the market. The Fed said it needed further evidence that economic progress will be sustained, and added that its policy interest rate should remain low for even longer than previously thought. Equities surged, while US interest rates and the US dollar plunged. The S&P500 is currently up 0.9% to fresh record high.

5:53AM, 19 Sep 2013

 

Market Wrap:

Global market sentiment: The Federal Reserve refrained from tapering its QE program – a major surprise for the market. The Fed said it needed further evidence that economic progress will be sustained, and added that its policy interest rate should remain low for even longer than previously thought. Equities surged, while US interest rates and the US dollar plunged. The S&P500 is currently up 0.9% to fresh record high. Commodities are also higher.

 

Interest rates: US 10yr treasury bond yields earlier ground higher to 2.90%, slipping to 2.85% just before the FOMC statement. The immediate reaction was a plunge to 2.73%, extending to 2.67% during Bernanke’s press conference.

 

Australian 3yr government bond yields (implied by futures) initially made a six-month high at 3.19% but abruptly reversed following the FOMC to 3.00%. The 10yr yield initially made an 18-month high at 4.21% before plunging to 3.99%.

 

Currencies: The FOMC surprise severely hurt the US dollar which is currently is around 1% lower. EUR rose from 1.3250 to 1.3512 – a seven-month high. USD/JPY fell from 99.20 to 97.87. AUD rose from 0.9340 to 0.9508 – a three-month high. NZD rose from 0.8205 to 0.8377 – a four-month high. AUD/NZD fell on the FOMC news, from 1.1380 to 1.1340.

 

Economic Wrap:

The Fed did not taper. It left its $85 bln QE program intact given tightening of financial conditions and fiscal retrenchment, which if sustained, could slow the pace of improvement. That leaves monthly purchases of treasuries at $45 bln and MBS purchases were kept intact at $40 bln/month. The Fed also maintained its zero-0.25% low-rate policy setting and much of its previous guidance, while remaining wary over inflation persistently trending below 2%. The Fed also left its 6.5% unemployment and 2.5% inflation thresholds intact, while leaving any future moderation in asset purchases up to the data, should it continue to support expected improvements in the labor market and inflation. The vote was 9-1 in favor with KC Fed hawk George continuing to dissent and Bloom-Raskin not taking part in the meeting.

 

Market Outlooks:

Event risk today: The FOMC surprise is likely to continue to resonate throughout the day. There’s also an important local release in NZ – Q2 GDP – which we think could be disappointing, although markets may look through it was drought-affected. The RBA releases August’s fx transactions. In the US tonight  there’s jobless claims, the current account, home sales and more.

 

NZD/USD 1 day: 0.8360 should provide some resistance but will eventually be overcome, the next major targets 0.8400 and then 0.8455.

 

NZD/USD 1-3 month: The Fed’s surprising delay in tapering QE should support NZD/USD for at least the month ahead. NZ fundamentals push in the same direction so NZD/USD towards 0.86 is likely.

 

AUD/USD 1 day: Upside momentum is strong, beyond 0.9530 resistance the next major target 0.9665.

 

AUD/USD 1-3 month: The Fed’s surprising delay in tapering QE should support AUD/USD for at least the month ahead. Against that, the Australian economic data flow is unsupportive, and the RBA is likely to ease further to 2.0% by Q1 2014. Our best guess then is AUD/USD drifts slightly higher towards 0.97.

 

AUD/NZD 1 day: A break below 1.1335 will signal a move to 1.1265 and then 1.1200 during the days ahead.

 

AUD/NZD 1-3 month: The downtrend since March should eventually resume and targets 1.1000- during the months ahead. Relative fundamentals (e.g. RBA easing to 2.0% vs RBNZ stuck at 2.5%) favour the NZD medium term.

 

NZ swap yields 1 day: In response to changes in US and Australian bond yields overnight (see above) the 2yr should open down 5bp at 3.51% and the 10yr should open down 9bp at 5.04%.

 

NZ  swap yields 1-3 month: The uptrend since June 2012 remains intact despite the large downward correction likely to unfold during the weeks ahead (the 10yr swap should fall to at least 4.80%). By Dec-2013 the 2yr could reach 3.80% based on NZ’s improving fundamentals and eventual RBNZ tightening in 2014

 

 

 

 

 

 

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Amazing Trader EVENT RISK Calendar:


Mon 20 Nov
14:00 EZ- Draghi Speech
15:00 US- Leading Indicators
Tue 21 Nov
15:00 US- Existing Homes Sales
23:00 US- Yellen Speech
Wed 22 Nov
13:30 US- Weekly Jobless
13:30 US- Durable Goods
15:00 US- final University of Michigan Survey
15:30 US- EIA Crude
19:00 US- FOMC Minutes
Thu 23 Nov
US/JP- Holiday
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13:30 CA- Retail Sales
Fri 24 Nov
All Day flash PMIs
09:00 DE- IFO Survey
US- Early Closes

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  • POTENTIAL PRICE RISK: HIGH Mon -- 14:00 GMT EZ- Draghi speaks in Brussels. Looking for any policy hints or bias


  • POTENTIAL PRICE RISK: HIGH Tue -- 13:30 GMT US- Existing Homes Sales. Top Housing Statistic

  • POTENTIAL PRICE RISK: HIGH Tue -- 23:30 GMT US- Yellen Speech. Early evening. Looking for anything on policy


  • POTENTIAL PRICE RISK: Medium Wed -- 13:30 GMT US- Weekly Jobless, Durable Goods
  • POTENTIAL PRICE RISK: Medium Wed -- 15:00 GMT US- final University of Michigan Survey
  • POTENTIAL PRICE RISK: Medium Wed -- 15:30 GMT US- EIA Crude
  • POTENTIAL PRICE RISK: HIGH Wed -- 19:00 GMT US- FOMC Policy Minutes. Key policy release


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