Global Themes

NZD

NZD rallies as stocks, commodities push upward

Dow closes in on highs

In true risk-on fashion, US equities gained ground overnight with the DOW reaching 26,400, approaching the all time high 26,616. US 10 year treasury yields jumped above 3%, also approaching their highest levels in over a decade. The move away from the almighty Dollar saw the NZD rally on the back of the this risk-on rhetoric, reaching 0.6614 against the USD overnight. The NZD/JPY also had a welcome reprieve, opening this morning above 74 at 74.26. The NZD/AUD fell sharply as the AUD outperformed, the cross opening this morning at 0.9100.

Almost as if supporting the inflationary environment, oil closed very close to highs - just shy of USD 80 p/b. This global risk-on push comes ahead of the US Federal Reserve meeting next week, when Fed officials are largely expected to hike rates above 2.00% for the first time in decades. The probability of an interest rate increase is widely expected to be above 90%.

Whilst a momentary abatement can provide relief to importers, it is important to remember that interest rate differentials are the primary driver of FX markets. As the NZ and US interest rates diverge, and the US continues to increase, consideration of fundamentals would suggest that the NZD could continue to weaken over time.

NZ GDP today

Did Jacinda know?

NZ GDP figures are due for release this morning at 10.45am. Markets will be watching with interest as rumours swirl that the NZ economy is beginning to slow. A GDP surprise could be an indicator ahead of the RBNZ meeting next week. Positive growth may provide grounds for the RBNZ to re-consider their stance on rates.

There is however a view among retailers and wholesalers across the country that the economy may be beginning to slow. An increasing theme of discussion is slowing sales and dwindling interest in consumption.

All of this may be a moot point however if markets have priced in Jacinda's slip-of-the-tounge in her recent interview. Critics suggest that she may have seen the GDP figures ahead of the release and mistakenly admitted that figures looked good. If this is to be believed and markets have in fact priced in the positive figure, then a positive release today could have a reduced impact.

The end of the week

Thursday & Friday

Thursday

10.45am NZ GDP

8.30pm UK retail sales

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