|

NZ: Economy still has solid credentials - ANZ

Analysts at ANZ present their economic assessment of the NZ economy and the likely impact on the kiwi interest rates and appropriate currency strategy.

Key Quotes

Economic overview: The supply side is responding to considerable housing pressures in Auckland, but barely sufficiently to keep up with demand. Two challenges, namely cost escalation and capital constraints (especially in the multi-dwelling space) risk curtailing the supply side response further. Finding skilled labour is an additional issue. While there are some natural ways the ‘market’ could offset demand-side strength (increased inter-regional migration and larger household sizes), headwinds to supply growth reinforce how correcting Auckland’s housing imbalances and affordability challenges is a multi-decade undertaking. In data this week, dairy prices are expected to slip, while trends in migration and visitor arrival figures (next week) should stay strong.” 

Interest rate strategy: Short-end rates continue to range trade. And while they are yet to gravitate lower towards levels more in line with the RBNZ’s projections, they have ample scope to do so. However, with cross-currents aplenty (mortgage-related paying, talk of tax cuts, and upbeat Fedspeak versus the high TWI and RBNZ dovishness), the market is eager to pay into dips, so any dips will be shallow. Better-than-expected US data and the chorus of Fed governors has been noticed at the short-end of the US curve, with a March hike now “live”, but US Treasuries remain range-bound. From our viewpoint, the risk is we see a break higher in Treasury yields, with knock-on consequences locally. However, with Japanese bonds holding steady, German bund yields lower and UK gilt yields back at their lows for the year, the overall global bond backdrop is less menacing than it might have been.” 

Currency strategy: The USD looks set to be in the box-seat over the next month. It has become increasingly clear that the Fed has met its dual mandate, meaning the March FOMC meeting is “live”. New Zealand still has solid credentials, so we expect it to remain in a holding pattern for now. And while we can see some pro-cyclical elements of the economy turning, we do not believe they are sufficient to materially influence NZD direction yet. For that we need to see the global liquidity cycle turn.”

Author

Sandeep Kanihama

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

More from Sandeep Kanihama
Share:

Editor's Picks

EUR/USD consolidates around 1.0900, bullish bias remains ahead of key US data

The EUR/USD pair is seen consolidating its strong gains registered over the past two days and oscillating in a narrow band during the Asian session on Tuesday. Spot prices currently trade around the 1.1900 mark, just below an over one-week high touched the previous day.

GBP/USD edges lower below 1.3700 on UK political risks, BoE rate cut bets

The GBP/USD pair trades on a weaker note around 1.3685 during the European session on Tuesday. The Pound Sterling edges lower against the US Dollar amid political risk in the United Kingdom and rising expectations of near-term Bank of England rate cuts. 

Gold: Will US Retail Sales data propel it above $5,100?

Gold hovers below weekly highs of $5,087 early Tuesday, await US Retail Sales data. The US Dollar enters a downside consolidation phase amid persistent Japanese Yen strength and worsening labor market. Gold settled Monday above $5,000, now looks to take out $5,100 amid bullish daily RSI.

Top Crypto Gainers: World Liberty Financial, MemeCore and Quant gain momentum

World Liberty Financial, MemeCore, and Quant are leading gains over the last 24 hours as the broader cryptocurrency market stabilizes after last week’s correction. Still, the technical outlook for altcoins remains mixed due to prevailing downside pressure and vulnerable market sentiment. 

Follow the money, what USD/JPY in Tokyo is really telling you

Over the past two Tokyo sessions, this has not been a rate story. Not even close. Interest rate differentials have been spectators, not drivers. What has moved USD/JPY in local hours has been flow and flow alone.

Ripple exposed to volatility amid low retail interest, modest fund inflows

Ripple (XRP) is extending its intraday decline to around $1.40 at the time of writing on Monday amid growing pressure from the retail market and risk-off sentiment that continues to keep investors on the sidelines.