RBNZ: RBNZ FX Intervention Reserves To Be Updated
The NZ Treasury in coordination with modelling from the RBNZ has decided to give the central bank more capital and an indemnity to allow it to increase its capacity for FX intervention if needed, according to a report to Treasury quoted by Bloomberg. The sizes of the increase in FX reserves and indemnity have not been disclosed but Treasury added NZ$500mn to the RBNZ’s balance sheet in July.
- Reserves have not been adjusted since 2007 and due to the increased size of the economy and financial markets they need to rise for the RBNZ to be able to respond to events to support the central bank’s objectives. Governor Orr said in January that an increase would occur over a number of years to reduce the impact on markets.
- The decision to build reserves and provide the indemnity is to allow for FX intervention while reducing the chance of the RBNZ ending in low or negative equity if there is a currency loss. The indemnity means that the RBNZ can “effectively “short” foreign currencies” but these events would be “rare”, according to the Treasury.
- Increased reserves allow the central bank to take on more risk which would only impact Treasury if there are losses or gains from intervention.
- The reserves framework will be reviewed every 5 years. See report here.
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Historical bullets
AUD: Trimming Friday's Gains, Lower Yields Weigh
AUD/USD prints at $0.6640/45, the pair is ~0.3% lower today.
- The AUD is trimming some of Friday's ~0.8% gain as lower Australian yields weigh with tomorrows RBA meeting in view.
- Support comes in at the low from June 29 ($0.6596), a break through here opens $0.6579 the low from Jun 5.
- AUD/NZD is down ~0.4%, The 200-Day EMA ($1.0850) has been broken and we last sit at $1.0825/35. AUD/JPY is little changed and sits a touch above the ¥96 handle.
- Cross asset wise; US equity futures are little changed and the Hang Seng is holding early gains of ~1%.
- The highlight of this week's calendar is Tuesdays aforementioned RBA monetary policy decision, analysts are split 14 to 13 between unchanged and a 25bp hike in the Bloomberg survey.
NZD: Firmer, 20-Day EMA Providing Resistance
NZD/USD prints at $0.6130/35, the pair is ~0.2% firmer than opening levels this morning.
- The pair firmed after the PBOC Yuan fix was stronger than expected which pressured the USD briefly dealing above Fridays highs.
- Resistance has been seen at the 20-Day EMA ($0.6141).
- AUD/NZD is down ~0.4%, technical flows and lower Australian yields appear to be weighing on the pair. The 200-Day EMA ($1.0850) has been broken and we last sit at $1.0825/35.
- On the wires this morning, May Building Permits fell 2.2% M/M, the prior read was -2.6%.
- Wider swings in risk sentiment will remain the main driver in NZD today.
CROSS ASSET: Greenback Pressured After PBOC Fix
The USD has been pressured in recent trade after the PBOC extended support to the Yuan with todays stronger than expected fixing. Tsys have rallied off sessions along the mover lower in the USD.
- USD/CNH is down ~0.2%, printing a low at 7.2451 before paring losses. In the G-10 space NZD is the strongest performer, NZD/USD was up ~0.3% before marginally paring gains to sit ~0.2% firmer.
- TYU3 has firmed off session lows and sits at 112-03+, -0-05. In the equity space the CSI300 and Hang Seng are ~1% firmer.
- The Caixin Mfg PMI printed at 50.5 a touch firmer than the expected 50.0.
