NEW ZEALAND: VIEW: Westpac Doesn’t See Budget Impacting RBNZ Outlook
Westpac noted that Budget 2025 showed a “slightly weaker fiscal outlook” than in the HYEFU as expected, as the softer “near-term outlook for (nominal) economic growth” from weaker global growth and lower expected pay rises lowered future tax revenue. It doesn’t expect the budget to impact RBNZ forecasts released May 28, which are “much more likely to be driven by the global outlook”.
- Westpac notes that “revenue has also been impacted by the Government’s decision to offer a tax-based incentive to encourage investment (in year one, firms will be able to deduct 20% of a new assets value, in addition to normal depreciation). This policy will cost about $6bn over the next four years, which the Government hopes will lift GDP by 1% over a 20-year period)”.
- “Forecast NZGB issuance in ‘25/26 and ‘26/27 has been reduced by $2bn per year. However, cumulative issuance over the full four-year forecast period has been raised by $4bn, including a $6bn increase to the programme for ‘28/29. Subject to market conditions NZDM expects four bond syndications in ‘25/26 – three taps of existing lines and one new 20 September 2050 inflation indexed bond (IIB).”
- “The OBEGALx deficit in the five years to ‘28/29 is around $9bn larger than in the HYEFU, with a wafer-thin surplus of just $0.2bn forecast for ‘28/29.”
- “The Treasury’s estimates continue to imply that the fiscal policy settings will be a cyclical drag on growth, although on net slightly less than estimated in the HYEFU.”
- “Core Crown spending is on average $0.6bn lower than forecast in the HYEFU.”
- “We think that the ratings agencies will remain comfortable with the outlook for the public finances given New Zealand’s relatively low debt, with a significant narrowing of the current account deficit likely to offer further support to the sovereign credit rating.”
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US TSYS: Asia Wrap - Yields Largely Unchanged
TYM5 has traded slightly lower with a range of 110-22 to 110-27+ during the Asia-Pacific session. It last changed hands at Heading 110-23, down 0.03 from the previous close.
- The US 10-year yield is unchanged, dealing around 4.41%
- The US 2-year yields is unchanged, dealing around 3.77%
- Risk has turned lower with concerns President Trump will fire Fed Chairman Jerome Powell adding to a market that is already consumed with uncertainty.
- “President Donald Trump warned the US economy may slow if the Federal Reserve doesn’t move to immediately reduce interest rates.”(per BBG)
- Dips back towards 4.25% support in US 10-years have found sellers first up as US yields continue to rise on fears of a rotation out of US assets.
- Data/Events : The IMF releases its World Economic Outlook, Fed Vice Chair Philip Jefferson as well as regional Fed chiefs Tom Barkin (Richmond), Neel Kashkari (Minneapolis) and Patrick Harker (Philadelphia) are scheduled to speak later Tuesday
FOREX: Antipodean Wrap - AUD & NZD Making New Highs
With hopes of any early trade deal fading, the market very quickly returned to what is now becoming a consensus trade, sell the USD. USD/CNH is stable but look at EUR/CNH and CNH/JPY to see how the Yuan is being managed lower. “ (Bloomberg) -- New Zealand exporters had a bumper start to the year, buoyed by a lower currency and higher global prices for key commodities such as milk powder and meat. Exports surged to a record NZ$20.6 billion ($12 billion) in the three months through March, Statistics New Zealand said Tuesday in Wellington. That’s a seasonally adjusted 11% jump from the fourth quarter and 19% more than the year-earlier period.”
- AUD/USD - Asian range 0.6402 - 0.6436, AUD has traded better bid for most of the Asian session. After showing some signs of exhaustion at the end of last week the AUD has broken and held above the pivotal 0.6400 area. Dips back to the 0.6300 area should continue to find demand while the market obsesses about a lower USD.
- AUD/JPY - Asian range 90.12 - 90.57. Price goes into the London open towards the lows trading around 90.20, still firmly within last week’s range of 89.50-91.50. Support towards 90.00 continues to hold for now, a break through here and the downward trend could be reinstated.
- NZDUSD - Asian range 0.5981 - 0.6021, NZ exports hit a record on low currency and high commodities. The market is going into London pressing new highs. Thoughts of a reversion were fleeting as upward momentum is reignited. Expect buyers to return first around 0.5920/50, then around 0.5850/80.
- AUD/NZD - Asian range 1.0682 - 1.0706, the cross has drifted sideways in the Asian session.
Fig 1 : AUD/USD Spot Daily Chart
Source: MNI - Market News/Bloomberg
GOLD: Close To $3500, Moving In Line With USD Weakness
Gold is fast approaching the $3500 level. Session highs rest at $3494.8, while we were last near $3486/87, still up 1.8% for the session so far. Monday's gain for bullion was 2.92%.
- Gold is moving in lockstep with USD weakness, the chart below shows bullion plotted against the BBDXY index, which is inverted on the chart.
- The inability of the USD to sustain the earlier modest rebound has likely only added to gold's current bullish momentum. The USD remains firmly under pressure, with continued unwinding of US exceptionalism in focus.
- As we noted earlier, the RSI (14) on gold is comfortably into overbought territory, not at 79.6, but we are still under 2024 extremes for this metric.
Fig 1: Gold Spot Price & USD BBDXY Index (Inverse)
Source: MNI - Market News/Bloomberg
