RBA: *Forecast Projections Largely As Expected

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.

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.

Source: MNI - Market News/CoreLogic

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.