USD weakens against NZD

CURRENCY: Another relatively quiet Asian session with the NZ

Business PMI not expected to affect the NZD. The focus will be US

data overnight with the Philly Fed expected to improve.

Last night’s Empire Manufacturing Survey sets us up for a

positive USD reaction should that improvement eventuate.

RATES: Kiwi rates are expected to open a touch higher across the

curve following overseas moves.

REVIEW

CURRENCY: The July CPI was flat in the US, the Empire Manufacturing

and TIC flows were weak as the market looked through strong July

industrial production, housing and capacity utilisation causing an

anaemic bounce off support for the NZD.

GLOBAL MARKETS: A mixed night overall, with interest rate markets

selling off, the USD weakening against the NZD, AUD and yen but

gaining against the euro, and equities going sideways. Overnight

data was mixed, with weaker than expected data largely ignored in

interest rate markets. Equities treaded water, with the US S&P

500 up 0.1%, the Euro Stoxx down 0.1%, with the FTSE 100 down 0.5%

despite shares in Standard Chartered Plc gaining 4.1% on a smaller

than expected fine from New York Regulators. US Treasuries sold

off, with the 10-year yield up 7pbs (1.80%) approaching a three

month high. Yields also moved higher for Germany (up 10bps to

1.56%), and the UK (up 8bps to 1.68%). Yields eased for Spain

(6.58%) and Italy (5.74%). The CRB index gained 0.4%, with stronger

gains for crude oil (+1.0%), wheat, corn and soybeans (1.1%, 1.7%

and 2.1% respectively) and falls for natural gas and live cattle.

KEY THEMES AND VIEWS

AUGUST BOE MINUTES SHOW 9-0 VOTE. This was the verdict for both

keeping the policy rate at 0.50%, and maintaining the asset

purchase target at £375bn. Reading between the lines it is

apparent MPC members are shifting away from considering further

repo rate cuts. However, there were more nuances suggesting MPC

members were becoming more convinced over the effectiveness of QE,

and this will be the route taken if the economy takes a turn for

the worse. Central bankers are a cautious lot, however, and while

the minutes suggested that the new 'funding for lending' scheme may

have had more benefit than previously assumed, the Bank will need

more time to assess the impact of the scheme on funding conditions

and lending. Something for the Fed to ponder, with benign US

inflation data and weakening manufacturing sentiment providing US

policymakers with even more flexibility to act ahead of the looming

fiscal cliff, particularly with the unemployment rate stuck in an

8%+ zone.

OTHER EVENTS AND QUOTES

- Standard Charted Plc, which was fined $340m by New York

Regulators may have to pay up to $1bn to settle all probes by

regulators into transactions for Iranian clients according to

Bloomberg reports.

- Dairy prices surge 7.8% at GlobalDairyTrade action. Anhydrous

Milk Fat (up 14%) and Milk Protein Concentrate (15.4%) led the

charge, with whole milk powder prices up 7%. There were good

volumes cleared, with 43,421 metric tonnes sold, with the average

winning price (US $3,054/tonne), the highest since April.

NZD/USD: US data tonight again…

The market focuses on the negative in the data last night despite

strong production and housing. This sets us up for a continuation

of mild USD strength should the Philly Fed improve tonight as

expected.

Expected range: 0.8040 - 0.8090

NZD/AUD: Volatility crushed…

Two positive bits of NZD specific news in milk powder auction

overnight and retail trade earlier in the week have been unable to

move this cross, a situation expected to continue today.

Expected range: 0.7670 - 0.7695

NZD/EUR: Positioning move…

A reversal in the EUR with a static NZD leads to a bounce higher in

this cross. Nothing really driving the EUR move as it occurred well

before US data and after UK data so I attribute it to small

reversal of stops.

Expected range: 0.6550 - 0.6590

NZD/JPY: JPY strength capped…

Both JPY and NZD were very static overnight. Considerations in this

cross will centre on if the BOJ is ready to act.

Expected range: 63.40 - 63.80

NZD/GBP: Nothing new…

A great unemployment report is looked through due to Olympic boosts

which are one offs. The BOE minutes deliver no surprises as the

vote was unanimous to keep everything as it stands. The debate

regarding the base rate level was not given any further

consideration with only passing mention.

Expected range: 0.5135 - 0.5160

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