NZD: Kiwi Softer As RBNZ’s Conway Says OCR At Lower End Of “Neutral”
Oct-15 00:15
NZDUSD has dipped today to around 0.5709 following comments from RBNZ chief economist Conway and that he’s “confident” the output gap will close and that rates are towards the bottom end of neutral suggesting that further easing will bring policy into stimulatory territory. At this stage another cut on 26 November looks likely.
- Conway reiterated that rates are “getting toward the lower end” of the neutral range. The RBNZ estimates it to be around 2.5-3.5% and the OCR is currently at 2.5% after October’s 50bp cut. He also repeated that excess capacity should help inflation return to the 2% mid-point of the band.
- His speech was on the policy lessons learned from the pandemic period which included recent research on the effect of Large-Scale Asset Purchases (LSAPs). He stated that “while certainly not perfect, LSAPs need to remain a key part of our additional policy toolkit for targeted interventions during financial and economic crisis when the Official Cash Rate has reached its lower limit.” But additional tools are unlikely to be used anytime soon.
- Kiwi was impacted by generally weaker risk appetite on Tuesday related to US-China trade concerns as China retaliated against the US’ investigation into shipping. NZDUSD fell 0.2% to 0.5716 on Tuesday off the intraday low of 0.5683 helped by comments from US trade representative Greer that staff-level talks with China were taking place increasing hopes of a solution.
- AUDNZD is up 0.2% to 0.1365 so far today driven by the contrast between the RBNZ’s clear easing bias and the RBA’s caution and focus on upside risks in its 30 September meeting minutes. AUDNZD fell to 1.1323 on Tuesday and finished down 0.3% to 1.1349.
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OIL: Oil Prices Higher Last Week, Watching Sanction Talks
Sep-14 23:35
Oil prices were moderately higher on Friday as markets continue to monitor NATO/Russia/Ukraine developments. The fundamental outlook remains weak with the market expected to turn to surplus towards year end.
- WTI rose 0.4% to $62.60/bbl to be up 1.2% on the week but down 2.2% in September. It reached $63.98 before moderating and has started today around $62.67. The bear cycle is intact with the bear trigger at $61.29. Initial resistance is $66.03.
- Brent was up 0.8% to $66.88/bbl to be 2.1% higher last week but 0.9% lower this month. It made an intraday high of $68.17, still below initial resistance at $69.53. Technicals are signalling a bearish outlook. Key short-term support is $64.50.
- Geopolitics provided support last week but the IEA continued to expect a record market surplus in 2026.
- Further sanctions on Russia are being discussed by the EU and US but President Trump has said that NATO needs to stop importing Russian crude before he’ll impose further restrictions. US Treasury Secretary Bessent said that the G7 should also place duties on countries buying Russian oil.
- Ukraine continues to target Russia’s energy infrastructure with drones striking the large Kirishi oil refinery. The attacks have pushed Russian refinery utilisation to lows and exports of refined products have been restricted as a result. The Basneft refinery and a major methanol producer were also struck on the weekend.
AUSSIE BONDS: Modestly Weaker With US Tsys, Light Local Calendar This Week
Sep-14 23:30
ACGBs (YM -2.5 & XM -3.0) are weaker after US tsys closed with modest losses on Friday as buying petered out and profit-taking set in. Also weighing was the unwinding of expectations for a 50 bp cut this week, the digestion of the $119 B in issuance, and spillover from losses in European bonds.
- The market has come a long way since Chair Powell's dovish stance at his August 22 speech at Jackson Hole. The 2-year yield finished 1bp higher at 3.56% after testing 3.47% on last Monday, the richest since September 2022.
- There is no cash US tsy trading today with Japan out.
- Cash ACGBs are 2-4bps cheaper with the 3/10 curve steeper and the AU-US 10-year yield differential at 19bps.
- The bills strip is flat to -2 across contracts with a steepening bias.
- RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut in September is given a 10% probability, with a cumulative 28bps of easing priced by year-end (based on an effective cash rate of 3.59%).
- Today, the local calendar will be empty ahead of an RBA Hunter's Fire-Side Chat tomorrow.
- This week, the AOFM plans to sell A$1200mn of the 4.25% 21 December 2035 bond on Wednesday and A$1000mn of the 1.00% 21 December 2030 bond on Friday.
BONDS: NZGBS: Modestly Cheaper With US Tsys, Q2 GDP On Thu
Sep-14 23:07
In local morning trade, NZGBs are 1-3bps cheaper after US tsys finished the Friday session with modest losses.
- There was a muted reaction to lower-than-expected UofM sentiment, 1Y inflation steady while 5-10Y inflation expectation rose: 3.9% (cons 3.4) in Sep prelim after 3.5% in Aug.
- Previously, such an upside for long-term inflation expectations would have sparked a market reaction, but not this time. We suspect it was because preliminary readings for August and less so July were marked lower in the final.
- Consumer sentiment surprised lower in the UofM preliminary September report, at 55.4 (cons 58) after 58.2 in Aug.
- The NZ performance of services index fell to 47.5 in August from 48.9 in July.
- The focus of the week will be on Thursday’s Q2 GDP data release. Bloomberg consensus is in line with the RBNZ’s August forecast of -0.3% q/q, bringing the annual rate to flat after declining 0.7% y/y in Q2. 25bp rate cuts are expected at both the October 8 and 26 November meetings.
- Swap rates are 1-2bps higher.
- RBNZ dated OIS pricing is little changed across meetings. 22bps of easing is priced for October, with a cumulative 40bps by November 2025.
