RBA: *Forecast Projections Largely As Expected

Aug-04 01:55

*Correction in the second bullet

The RBA SoMP hasn't produced a large market reaction. AUD/USD is tracking higher, last around session highs at 0.6585. But this appears to main reflect a positive risk tone, particularly in the equity space.

  • The RBA's forecast projections to end 2025 are in line with what was outlined in Tuesday's monetary policy statement. See this link for the key projections made in August from the SoMP.
  • Near term GDP growth expectations were a touch weaker and slightly weaker out to mid next year (1.25%, versus 1.50% prior). The near term unemployment rate was nudged down, but unchanged out over the forecast horizon (expected to hold steady at 4.5% by end 2025).
  • It was a similar back drop for inflation (relative to the May projections), headline back to 2.75% by end 2025, likewise for the trimmed mean.

Historical bullets

NZD: Pares Gains After Softer Than Expected Caixin Services PMI

Jul-05 01:53

NZD/USD prints at $0.6190/95, the pair is little changed today.

  • The pair has pared early gains after meeting resistance above $0.62, with losses marginally extending in recent dealing after a softer than forecast Caixin Services PMI print.
  • Ranges do remain narrow, and moves have had little follow through thus far.
  • AUD/NZD sits a touch below the $1.08 handle and is down ~0.1% today.
  • Cross asset wise; BBDXY is ~0.1% firmer and 2 Year US Tsy Yields are ~4bps lower. WTI futures have marginally pared early gains but still remain ~1.5% firmer.
  • A thin docket for the remainder of the Asian session leaves wider swings in risk sentiment as the main driver of the NZD.

NEW ZEALAND: House Prices Fall Further, Fundamentals Point To Trough Soon

Jul-05 01:40

CoreLogic house prices fell 10.6% y/y in June in NZ (May -10.2%) falling 1.2% m/m in contrast to Australia where prices rose 1.3% m/m to be down only 4.7% y/y. The cash rate is 5.5% in NZ compared with 4.1% in Australia. While the correction in NZ housing continues, it is down 12.7% from its peak, prices are still 28.3% higher than they were in December 2019. Prices rose 46% over the Covid period.

  • NZ house prices fell the most on the month since October 2022, whereas Australia recorded its fourth straight monthly rise. Both countries are seeing a big increase in immigration. Auckland fell 3% m/m while Sydney rose 1.7%.
  • CoreLogic NZ said that the long and material hiking cycle had weighed on housing demand but that there are signs that a trough is imminent. Whereas in Australia they think expectations of further tightening will slow the market.
  • Low stock of housing for sale in NZ as well as increased migration and a likely peak in rates should mean that prices will turn higher. A lack of supply is also a problem in Australia with city inventories over 25% below the 5-year average and is driving rising prices there.
  • Head of NZ research Goodall said “stretched affordability, due largely to still-high property values and high interest rates compared to recent history is likely to keep a lid on demand, which should lead to a much more stable and balanced market.”
  • CoreLogic also note that over 50% of average household income is required to service an 80% LVR mortgage in NZ compared with 43% in Australia.
  • See NZ report here and Australia here.
CoreLogic home prices y/y%

Source: MNI - Market News/CoreLogic

AUSSIE BONDS: Solid Demand Seen For Nov-33 Supply

Jul-05 01:24

The latest round of ACGB Nov-33 supply sees firm pricing, with the weighted average yield printing 0.84bp through prevailing mids (per Yieldbroker) and the cover ratio rising above 4.70x.

  • The expectation for continued firm pricing at today’s auction proved correct with a less hawkish RBA combined with a significantly higher outright yield compared to the previous offering, a low level of issuance, and the inclusion of the line in the XMU3 basket, which enhances hedging opportunities, all working to keep demand solid.
  • The flattening of the yield curve doesn’t appear to have constrained the overall strength of bidding.
  • Following the supply, XM futures are around 1.5 to 2bp richer.
  • Additionally, the bond itself has experienced 1bp richening compared to pre-auction levels in cash trade.