I posted earlier on ANZ changing their call on the Reserve Bank of New Zealand from on hold to two cuts this year
- NZ data - ANZ February Business Confidence: 7.1 (prior 23.0)
(Also, for noting, earlier data today was soft also
- New Zealand data - Building Consents (January): -8.2% m/m (prior +2.3%)
)
ANZ have followed up with their view on the NZD. In (very) brief:
- Key crutches of support for the NZD are starting to look more tenuous:
- Tighter financial conditions flag a turn in the tenor of the economic data-flow over the coming months ... A softer data tenor increases prospects for a lower OCR
- Export prices are showing signs of weakness extending beyond dairying
- NZD resilience is increasingly looking the 'odd man out'. The rates market has moved to price in RBNZ rate cuts and rising funding costs across the antipodean region foretell rising risk assessments, which to date has been slow to manifest into the NZD.
- While popular perception is that yield-hungry flow will support the NZD, this support faces challenges. The potential for repatriation flows out of economies with Asian exposure is large. At a time of rising credit spreads, markets become more concerned with the return of capital, than the return on capital. Increased turbulence in financial markets is another issue, as rising volatility lowers the risk-adjusted expected return from yield advantage.
-
ANZ recommend selling NZD via the RBNZ's Trade Weighted Index (TWI):
- initially targeting 68.50 with a stop at 75.17
