AUDNZD: Goldman Sachs Doesn't See Further Significant Divergence In RBA-RBNZ Outlooks
The US bank weighs in on the AUD/NZD trend, expecting further upside to be limited, as prospects for further divergence in terms the respective monetary policy outlooks is limited. See below for more details. This comes ahead of tomorrow's NZ Q2 CPI print.
Goldman Sachs: "Divergence down under? Not so fast. AUD/NZD has seen over 3% of upside since the June lows, benefiting from RBA-RBNZ divergence being priced into markets. Relative monetary policy expectations have moved in different directions over the past month, but we would emphasize caution on pressing this theme too much further in FX markets. The modest upside surprise in Australia’s May inflation report generated a large shift in front-end rates pricing, and markets now see over 40% probability of an RBA hike by year-end. Though the right tail in yields has increased, we would argue that Australia’s backdrop of softer domestic activity and cooler wage growth argues for the RBA to stay on hold longer, rather than return to hikes. Meanwhile, the RBNZ’s guidance turned more dovish this week, with the statement introducing a slight easing bias. Our economists’ base case is that the RBNZ begins cutting in November, though there is a risk that the cuts begin earlier if the upcoming inflation data surprises to the softer side. A weaker CPI report could generate additional upside in AUD/NZD in the near-term. However, we think there is limited room to price additional divergence between these banks. In our view, the RBA seems more likely to keep rates on hold than hike, and cut pricing for the RBNZ has been pressed quite far. Currently there are over 50bps of cuts expected over the three RBNZ meetings by year-end. This could extend on a soft CPI print next week, but expectations seem relatively stretched at this point. Relative monetary policy is the main driver of AUD/NZD, meaning further upside in AUD/NZD could become more limited over the near-term."
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Historical bullets
USDCAD TECHS: Outlook Remains Bullish
- RES 4: 1.3977 High Oct 13 ‘23 and a key M/T resistance
- RES 3: 1.3899 High Nov 1 and a key resistance
- RES 2: 1.3846/55 High Apr 16 and the bull trigger / High Nov 10 2023
- RES 1: 1.3792 High Jun 11
- PRICE: 1.3759 @ 15:52 BST Jun 14
- SUP 1: 1.3667/1.3590 50-day EMA / Low May 16 and the bear trigger
- SUP 2: 1.3547 Low Apr 9
- SUP 3: 1.3512 50.0% retracement of the Dec 27 - Apr 16 bull cycle
- SUP 4: 1.3478 Low Apr 4
USDCAD has managed to recover from Wednesday’s intraday low of 1.3680. Key support is unchanged at 1.3590, the May 16 low. A clear break of this level would threaten a bullish theme and signal scope for a deeper retracement. For now, the trend outlook remains bullish, a continuation higher would signal scope for a climb towards key resistance and the bull trigger at 1.3846, the Apr 16 high.
US TSYS: Tsy Curves Bull Flatten Despite Soft Data
- Treasury futures look to steady to mixed in the short end, mildly higher out the curve. Treasuries opened higher, taking cues from EGBs again amid ongoing political uncertainty in France after Pres Macron announced a snap election in the aftermath of last Sunday's EU parliamentary elections.
- Rates see-sawed off early morning highs after lower than expected Import/Export data: Import Price Index ex Petroleum MoM (-0.3 vs. 0.2 est, prior down revised to 0.6% from 0.7%) while Export Price Index MoM fall to -0.6% vs. 0.1% est.
- Still off opening highs, Treasury futures gained slightly after lower than expected UofM Sentiment (65.6 vs. 72.0 est, 69.1 prior), Current Conditions (62.5 vs. 72.2 est). Meanwhile, 1 Yr Inflation slightly higher than exp at 3.3% vs. 3.2% est (3.3% prior, however), 5-10 Yr Inflation (3.1% vs 3.0% est).
- The Sep'24 10Y futures contract currently trades +3.5 at 110-26.5 vs. 111-01 high after the bell. Cash yields are running mildly lower: 5s -.0162 at 4.2278, 10s -.0330 at 4.2112%, 30s -.0485 at 4.3479%, while curves flatter: 2s10s -2.362 at -47.841, 5s30s -3.226 at 11.883.
- Rate cut projections look steady to slightly lower vs early Friday (*): July'24 at -12% w/ cumulative at -3bp at 5.298%, Sep'24 cumulative -20bp (21.1bp), Nov'24 cumulative -29.9bp (-31.1bp), Dec'24 -50.5bp (-51.1bp).
US STOCKS: Late Equities Roundup: Paring Early Losses
- Stocks continue to trade near steady to weaker (DJIA underperforming) in late Friday trade, off early session lows as shorts covered ahead of the weekend. Currently, the DJIA is down 76.02 points (-0.2%) at 38572.96, S&P E-Minis down 6.25 points (-0.11%) at 5432.25, Nasdaq up 8.9 points (0.1%) at 17676.47.
- Information Technology continued to lead gainers for the fourth consecutive session, software and semiconductor outperforming: Adobe is currently up 14.60% after beating 2Q earnings late Thursday citing strong AI demand. Other gainers included Broadcom, adding +3.79% to Thursday's strong gains after beating estimates late Wednesday, ServiceNow +2.56%, Autodesk +1.62%.
- Meanwhile, interactive media and entertainment supported Communication Services in late trade: Netflix +2.87%, Take Two +0.81%, Google +0.62%.
- Industrials and Materials sectors underperformed in the second half, industrial and electric machinery shares weighed on the former: Parker-Hannifin -5.47%, Howmet Aerospace -5.69%, GE Vernova -4.18%. Shares of chemical companies weighed on Materials in late trade: Albemarle -4.07%, Air Products % Chemicals -2.94%, Eastman Chemicals -2.84%.
