NEW ZEALAND: Non-Tradeables Lowest Since 2021, Feb 50bp Rate Cut Likely
Q4 NZ CPI was close to Bloomberg consensus expectations at 0.5% q/q and 2.2% y/y after 0.6% & 2.2% in Q3, above the RBNZ’s November forecast of 0.4% & 2.1%. The slightly higher outcome was driven by international airfares with the volatile component accounting for almost a quarter of the quarterly increase. With the data printing close to the RBNZ’s projections and non-tradeables easing, another 50bp cut on February 19 seems likely given the weakness of the economy.
- Headline inflation was impacted by a number of volatile components, such as airfares & cars, and so the underlying measures are likely to be the focus of the RBNZ with its own sector factor model estimates due at 1500 NZDT (1300 AEDT) today.
- Domestically-driven non-tradeables were slightly lower than expected rising 0.7% q/q and 4.5% y/y, the lowest quarterly rate since Q3 2020, and below the RBNZ’s projections of 0.8% & 4.7%. It rose 1.3% q/q and 4.9% y/y in Q3. Rents continue to grow strongly rising 0.8% q/q making a 15% contribution to Q4 CPI. Services prices rose 1.4% q/q and picked up to 4.8% y/y from 4.5%, still elevated.
- Stats NZ notes that excluding petrol prices, which fell 9.2% y/y, headline inflation would have been higher at 2.7% y/y.
- Vegetable prices were down 14.6% y/y. Thus the CPI ex food rose 0.8% q/q and 2.4% y/y.
- Tradeables were higher at +0.3% q/q but still down 1.1% y/y after -0.2% & -1.6%. This quarterly rise was the first since Q3 2023 suggesting that the disinflationary impact from goods prices is over. It was also higher than the RBNZ projected (-0.2% & -1.5%). Goods prices were flat though to be up 0.6% y/y.
NZ CPI y/y%
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GLOBAL MACRO: CFTC Positioning: Traders Sell AUD
The latest CFTC Commitments of Traders report shows notable speculative positioning shifts.
- In fixed income, large buying of 10-year futures (143k) and reduced duration shorts (124k) preceded the Fed announcement, while SOFR shorts fell by 219k.
- In FX, record weekly AUD selling (70k) and significant NZD selling (14.3k) contrasted with strong Swiss franc buying (13.2k) and smaller euro and MXN purchases, boosting the aggregate dollar long by $4 billion.
- In equities, traders were better buyers of S&P futures buying 43k contracts, bought 2k Russell and selling 4k Dow contracts while increasing VIX shorts by 4k.
- In commodities, oil longs surged by 40k, while gold and copper longs dropped by 14k and 5k, respectively.
ASIA: Government Bond Issuance Today.
- Bank of Korea to Sell 500 Billion Won 91-Day Bonds
- South Korea to Sell 100 Billion Won 5-Year Bonds
FOREX: USD Falls After Lower PCE Numbers. AUD, NZD Off Yearly Lows, JPY Weak
The BBDXY fell 0.53% on Friday, after closely-watched November inflation figures came in lower than expectations, weighing on Treasury yields. Core PCE inflation for November was marginally softer than detailed unrounded estimates, at 0.115% M/M vs estimates that we had seen averaging 0.13-0.14% M/M (it looked a larger miss compared to the 0.2% median estimate in the Bloomberg survey).
- The Japanese yen is the best performer in the G10 currency on Friday, with lower US yields boosting the JPY. USDJPY fell -0.9% however this should be taken in relation to the impressive 2.75% advance over the Fed and BOJ meetings on Wednesday/Thursday. Additionally, we had FinMin Kato come across the wires stating he was deeply concerned about FX moves, which was followed up by Chief FX Diplomat Mimura who also expressed deep concern around FX moves. The USD/JPY has opened slightly higher this morning at 156.38.
- USDJPY bullish conditions remain intact and Thursday’s gains reinforce current conditions. Thursday’s breach of 156.75, the Nov 15 high and bull trigger, strengthens bullish conditions. The move higher has confirmed a resumption of the uptrend and opens 159.45, the Jul 12 high. Initial firm support is 153.05, the 20-day EMA. A pullback would be considered corrective.
- The AUD/USD closed 0.19% higher at 0.6250 on Friday, and remains trading just off the yearly lows made on Dec 19th of 0.6199. The AUD/USD pair experienced a bearish week, pressured by strong US economic data. Technically, The trend needle in AUDUSD continues to point south and last week’s fresh cycle lows and Wednesday’s sell-off, reinforce a bear theme. The move down maintains the price sequence of lower lows and lower highs. Note that moving average studies are in a bear-mode position too, highlighting a dominant downtrend. The break lower opens 0.6158 next, a Fibonacci projection. Initial firm resistance to watch is 0.6371, the 20-day EMA.
- NZD/USD closed 0.37% higher at 0.5652, after hitting a yearly low of 0.5608 on Dec 19th. The pair looks vulnerable to test of 0.55 into year-end but downside action may be choppy given the RSI is in oversold territory at 29.5.
