Despite political-speak attempting to dissuade investors from adding onto one-way bets on the Kiwi dollar, the NZD retains its position as the currency of choice to finance the ever-popular carry trade.
Headlines
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Growth Rate of Electronic Card Transactions Bottoms To Record Low
Despite the recent spate of fundamentals in support of further monetary policy tightening at the Reserve Bank?s July 26 meeting, the release of data on electronic card transactions suggests consumer spending may actually have been curtailed. The second-tier measure computed by Statistics New Zealand valued June?s 77 million ECT with New Zealand-based merchants at NZ$ 4.4 billion. The 8.3 percent year-on-year rise in June credit card transactions represents the smallest annual rise in the trend since the inception of the ECT series in October 2002.
Source: Stuff.co.nz
http://www.stuff.co.nz/4133378a13.html -
Finance Minister Cullen Criticized for Suggesting Shift in RBNZ Focus
Comments by Michael Cullen caused widespread uproar after the Finance Minister alluded to the possibility of invoking section 12 of the Reserve Bank Act to stymie the climb of the Kiwi dollar. The action would allow Dr Cullen to suspend current monetary policy and alter RBNZ?s primary objective of maintaining inflation within the target of 1 to 3 percent. In response to criticism, Dr Cullen said his comments were meant to make speculators aware about his powers under the Reserve Bank Act, and hence highlight the risk of NZD carry trades.
Source: New Zealand Herald
http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10452585 -
Home Affordability Takes a Hit from Climbing Interest Rates
The impact of escalating interest rates on the housing sector was made obvious by the release of the monthly home loan affordability index by Interest.co.nz. The index - a measure of the proportion of take-home pay needed to repay a standard weekly mortgage on a median house - deteriorated to 81.2 percent in June from 68.2 percent a year ago. The worsening statistic reflects the effect of the 31 basis points rise in benchmark interest rates for a two-year fixed mortgage to 9.22 percent in June.
Source: Stuff.co.nz
http://www.stuff.co.nz/4133434a13.html
[B][U]Market Activity
[/U]Currency Market - NZD:[/B]
Despite political-speak attempting to dissuade investors from adding onto one-way bets on the Kiwi dollar, the NZD retains its position as the currency of choice to finance the ever-popular carry trade.
Buoyed by heightened expectations of a 25 basis points increase in the official cash rate at RBNZ?s meeting next week, the New Zealand dollar surged to a fresh post-float intraday high against the US dollar. During early trading in the Wellington session, the Kiwi dollar rose to 0.7945 but eventually eased back to 0.7912 amidst uncertainty caused by Michael Cullen?s suggestion he may invoke section 12 of the Reserve Bank Act to stymie the climb of the Kiwi dollar. Nevertheless, the Kiwi dollar remains elevated as US dollar weakness pervades forex markets after Federal Reserve Chairman Ben Bernanke voiced concerns over the US housing slump. With another NZ credit tightening appearing imminent, investors continue to flock to the free lunch? offered by the high-yielding New Zealand dollar - the NZDJPY was at 96.63 yen during the New York session, down from yesterday 21-year high of 96.87 yen. New Zealand dollar?s trade weighted index dropped to 75.65 after the record-high of 76.08 yesterday.
[I]NZDUSD (Daily Chart)
Source: Bloomberg[/I]
Equity Market - NZSX-50 Index:
New Zealand?s stock market peaked to a one-month high even though the country?s markets faced mounting investor caution given the continual advances by the New Zealand dollar ahead of the RBNZ interest rate decision on July 26th. With the gain of nearly 1 percent at close, New Zealand?s bourse outperformed other regional equity markets as the Japanese Nikkei index crawled up 0.2 percent and the Australian S&P/ASX 200 Index rose 0.7 percent. The benchmark NZSX-50 index gained 38.62 points or 0.9 percent to 4,294.26, on turnover of NZ$ 151.7 million. Gains outweighed losses 62 to 41 on the stocks traded. Most significant advances were made by Contact Energy stock, up 13 cents to a record high of NZ$ 935 on turnover worth about NZ$ 12 million. Also among the winners was Telecom, up 6 cents to NZ$ 4.84 on turnover of NZ$ 83.7 million, as the new post-float high hit by the Kiwi dollar attracted overseas investment, most notably from Australia.
[I]NZSX-50 Index (Daily Chart)
Source: Bloomberg
[/I]
Fixed-Income Market - 10-year Government Bonds:
Contrary to the uptrend established over the past few sessions, yield on New Zealand?s 10-year government notes dropped 2 basis points to 6.87 percent as traders speculate on whether NZ Finance Minister Cullen will intervene in the RBNZ?s tightening cycle.
[I]10-year Government Bonds
Source: Bloomberg
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