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01:46 AUD/NZD outlook: headed into a very important area - Westpac

Analysts at Westpac offered an outlook for the antipodean and rates.

Key Quotes:

"AUD/NZD 1 day: The break above 1.0710 brings into sight the very important 1.0670 area (a technical “neckline”). A break above that implies a multi-cent rise is in store.

AUD/NZD 1-3 month: Higher to the 1.0770 area at least. The cross remains well below fair value estimates implied by interest rates, commodity prices and risk sentiment. (17 Feb)

AU swap yields 1 day: The 3yr and 10yr should open around 2.14% and 3.05%, respectively.

AU swap yields 1-3 month: The 3yr has probably based at 1.60%, the RBA expected to sit tight at a 1.5% cash rate for some time. (7 Nov)

NZ swap yields 1 day: NZ 2yr swap rates should open little changed at 2.33%, the 10yr at 3.53%.

NZ swap yields 1-3 month: The RBNZ said it has ended its easing cycle and will remain on hold until 2020. That will anchor the short end, although markets will not abandon their expectations for earlier tightening which means occasional spikes in the 2yr will be likely. The long end will continue to follow mainly US yields, which we expect to rise. That means the curve steepening trend should continue."

01:33 Australia Wage Price Index (YoY) below expectations (1.9%) in 4Q: Actual (0%)

01:33 Australia Westpac Leading Index (MoM): 0% (January) vs previous 0.4%

01:22 NZD/USD: drifting in narrow range between key daily-sma s

Currently, NZD/USD is trading at 0.7160, down -0.07% on the day, having posted a daily high at 0.7168 and low at 0.7159.

NZD/USD has dropped back in the last hourly sticks a small fraction from recent highs and is catching a slight bid. NZD/USD has otherwise been better bid from 0.7132 lows overnight and falling just short of the 50-1hr sma at 0.7167. Fundamental news was cross-supportive - iron ore rising 2.7% to $94.86( the highest since Aug 2014) while the GDT dairy auction recorded a 3.2% decline, eventually taking its toll on the bird. Analysts at Westpac suggest that momentum remains negative and this they are targeting a break below 0.7130 during the days ahead.

NZD/USD 1-3 month:  

The Fed’s tightening cycle plus US fiscal expansion should maintain upside pressure on US interest rates and the US dollar, pushing NZD/USD down to 0.7000 or lower. Granted, the NZ economy is strong and dairy prices have risen, but these forces are subservient to the US dollar’s trend.

NZD/USD levels

NZD/USD is in a phase of consolidation on the 4hr sticks stuck in a 15-pip range between 0.7150 and 0.7167. The price has been capped within the descending trend's resistance from 0.7374. A break lower could open up risk to 0.7050 below to 50-day sma at 0.7140. 

00:27 AUD/USD unchanged near 0.7680; RBA s Lowe finally admits household debt risk

Currently, AUD/USD is trading at 0.7674, down -0.01% or -0.5-pips on the day, having posted a daily high at 0.7674 and low at 0.7673.

Today's NA trading session experienced a brief US dollar comeback as treasuries recovered. Furthermore, the Australian dollar vs. American dollar erased losses as the pair bounced off lows near 0.7648.

The AU economic docket had traders and investors prepared to pick any changes in the rhetoric from RBA's Lowe; he finally added more on Australia's household debt. As reported by The Sydney Morning Herald, "It is difficult to quantify this risk, but it is one that is difficult to ignore. High household debt levels could hurt the economy," Governor Philip Lowe commented.

Although the central banker diminished any further rate cuts, there is evidence to expect slow down in the economy as household are pushed to adjust their spending patterns.

AUD/USD analysis: no progress made, but downside still limited

Historical data available for traders and investors indicates during the last 8-weeks that AUD/USD pair, a commodity-linked currency, had the best trading day at +1.18% (Jan.17) or 89-pips, and the worst at -0.81% (Jan.18) or (61)-pips. Furthermore, the US 10yr treasury yields traded from 2.45% to 2.41%, up +0.59% on the day at 2.42% or +0.0143.

Technical levels to consider

In terms of technical levels, upside barriers are aligned at 0.7731 (high Feb.16), then at 0.7777 (high Nov.8) and above that at 0.7834 (high April.21). While supports are aligned at 0.7617 (low Feb.14), later at 0.7512 (100-DMA) and below that at 0.7459 (50-DMA). On the other hand, Stochastic Oscillator (5,3,3) seems to head south. Therefore, there is evidence to expect further Aussie losses in the near term.


On the long term view, if 0.7834 (high April 2016) is in fact, a relevant top, then the upside is limited at 0.7809 (short-term 38.2% Fib). Furthermore, if the RBA has 'no ammo' nor solid reasons to increase rates in 2017, the interest rate advantage should decrease organically as the Federal Reserve continues increasing rates with 3-hikes in the next 16-months. To the downside, supports are aligned at 0.7433 (short-term 23.6% Fib), later at  0.7182 (reverse long-term 61.8% Fib) and below that back to 0.6826 (low Jan.2016).


Bond market still not on board with a March rate hike

00:04 Economic wrap: awaiting FOMC minutes - Westpac

Analysts at Westpac offered an economic wrap.

Key Quotes:

"US manufacturing PMI (Markit) slipped from 55.0 to 54.3 (vs 55.4 expected). Still in expansion territory, although the employment component slipped to 52.7 from 53.9 and prices charged also slipped.

Eurozone manufacturing PMI (Markit) rose from 55.2 to 55.5 (vs 55.0 expected). This upside surprise was mainly driven by Germany, while the acceleration in the services PMI was broader based across countries. Job creation was at the highest level since 2007, posing upside risks to inflation as the labour market continues to improve. 

Fedspeak: Harker repeated yesterday’s MNI interview comments, looking for three rate hikes this year, and proclaiming March live (echoing Yellen). Kashkari was non-committal. Williams saw financial stability risks from low-interest rates.

Event Risk

Australia: RBA Governor Philip Lowe sees 3pct GDP by 2019

The Westpac Leading Index survey is running at 1.28% annualised. Positives this month include commodity prices, up 4% in AUD terms; consumer expectations +1.8%; and total hours worked +0.6%. Against this, the ASX200 dipped -0.8%; US industrial production dipped -0.3%; dwelling approvals declined -1.2%; the yield spread narrowing slightly and the unemployment expectations index deteriorated. Overall a consolidation on recent gains looks likely.

Q4 wage price index rose 0.4% in Q3, below market and Westpac's expectations for 0.5%, while the annual pace of wage inflation dipped to 1.9%yr, a record low. Wages are underperforming broader indicators of the labour market. Even if you use the broadest indicator of labour market slack, underemployment, wages growth is significantly softer than what you would expect it to be. We think little has changed hence our 0.4% forecast, which will take the annual pace down to 1.58%yr.

Q4 construction activity slumped in Q3, contracting by 4.9%, as the downturn in mining project work was exacerbated by surprising softness elsewhere. For Q4, we anticipate a modest contraction in construction work, of -0.8%. Private infrastructure work is expected to fall by 6.0%, not greatly different to last quarter, -6.6%. Total private building activity is expected to resume its upward trend, centred on housing, +1%, following a 5.7% drop last quarter. Public construction activity is also expected to resume its uptrend, centred on infrastructure.

US: FOMC Minutes. The release should offer some guidance on the prospects of a March hike. Key points of discussion centre on the labour market. This includes the outlook on the undershooting of the natural unemployment rate creating inflationary pressures, the return of people to the labour force as the economy strengthens, and measures of labour underutilisation.

Fedspeak includes Williams speaking to students and Powell on the economic outlook at the Forecaster’s Club of New York."

00:01 Wall Street closing at all time highs again

Wall Street was rallying on Tuesday and simultaneously closing at records for the second session in a row.

Despite disappointing data from the US economy in the US PMIs, the Dow Jones Industrial Average rose 0.6%, or by 118.95 points, to a record 20,743.00 and this was the eighth straight session of closing records and the longest winning streak since July 20, 2016. The S&P also rose and by 0.6% to close at a record 2,365.38, a gain of 14.22 points. Meanwhile, the Nasdaq Composite Index gained 27.37 points, or 0.5%, to finish at a record 5,865.95.

The US dollar index is around 0.4% higher even after US manufacturing PMI (Markit) that fell from 55.0 to 54.3 (vs 55.4 expected). The employment component also slipped to 52.7 from 53.9.

After the holiday yesterday, US 10yr treasury yields reopened at higher levels and up to 2.46%. However, the 10-year dropped back to 2.41% where it closed on Friday while shorter yields sustained gains, though, the 2yr in a higher 1.20%-1.22% range (vs 1.19% Fri) and the auction awarded at 1.23%, as noted by analysts at Westpac adding that Fed fund futures implied rates were slightly firmer, "The April contract at 0.72%, which implies around a 40% chance of a rate hike in March)."

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