a nz research...nov 03, 2014 · labour market data, whilst lagging, is expected to confirm a...

NEW ZEALAND ECONOMICS

MARKET FOCUS

ANZ RESEARCH

3 November 2014

INSIDE

Economic Overview 2

Labour Market Preview 6

Interest Rate Strategy 7

Currency Strategy 9

Data Event Calendar 11

Local Data Watch 13

Key Forecasts 14

NZ ECONOMICS TEAM

Cameron Bagrie Chief Economist Telephone: +64 4 802 2212 E-mail: [email protected] David Croy Senior Rates Strategist Telephone: +64 4 576 1022 E-mail: [email protected] Sharon Zöllner Senior Economist Telephone: +64 9 357 4094 E-mail: [email protected] Mark Smith Senior Economist Telephone: +64 9 357 4096 E-mail: [email protected] Steve Edwards Economist Telephone: +64 9 357 4065 E-mail: [email protected] Con Williams Rural Economist Telephone: +64 4 802 2361 E-mail: [email protected] Sam Tuck Senior FX Strategist Telephone: +64 9 357 4086 E-mail: [email protected]

PRICE TENSIONS

ECONOMIC OVERVIEW

The RBNZ is on hold; a dovish tilt for sure but amidst an implicit tightening bias. The

failure of the NZD to have a decent crack lower looks telling: elevated ranges

beckon. If price tension can’t be created over the next two dairy auctions with

limited supply then this would be a worrying sign, and signal an even lower forecast

milk price. Our internal anecdotes have been more positive for forestry and the

wider pastoral sector of late, with October commodity prices to provide a stocktake.

Labour market data, whilst lagging, is expected to confirm a stepping up of the

supply side, with annual wage inflation expected to be moderate.

LABOUR MARKET PREVIEW

A solid Q3 employment report is expected from both the QES and HLFS surveys,

with only the growing working age population and still-high labour force participation

preventing a larger fall in the HLFS unemployment rate. Annual wage inflation is

expected to firm, but remain contained for this stage of the cycle. There should be

little from this week’s labour market reports to budge the RBNZ from their firmly on-

hold OCR stance. The labour market may point to firming inflation pressure down

the track, but the onus is now on inflation to actually show up.

INTEREST RATE STRATEGY

Short end interest rates have now largely adjusted to last week’s very neutral OCR

Review, with market expectations now close to our forecasts. But while we see

limited further downside, equally, we also see no catalyst for a move higher with the

RBNZ’s tightening bias predicated on a pickup in inflation, which has yet to appear

and won’t with any vigour unless the NZD moves lower. Globally, the focus is on the

Bank of Japan, which has stepped in where the Fed left off, pledging to increase its

holdings of bonds by JPY 30 trillion (around USD 270bn) per annum. This surprise

development should help keep a lid on long end yields here and abroad.

CURRENCY STRATEGY

The failure of the NZD to drive materially lower on a more upbeat Fed and dovish

RBNZ looks significant; the NZD should remain elevated relative to history. With the

BoJ providing more liquidity and supporting risk assets and with NZ’s growth and

yield credentials sound, the NZD will find enthusiastic supporters. The divergence in

US data and global events mean it is on the NZD/EUR and NZD/JPY crosses where

this support should be most evident. NZD/AUD also looks like it should strengthen,

although the technical set-up suggests the current level needs to hold.

THE ANZ HEATMAP

Variable View Comment Risk profile (change to view)

GDP

2.8% y/y

for 2015

Q4

Confidence gauges suggest solid momentum, but lower commodity

prices flag moderation. Global scene the wildcard

Unemployment

rate

5.3% for

2015 Q4

Lifts in working age population to boost labour supply. Wage

inflation slowly lifting.

OCR 3.75% by

Dec 2015

RBNZ on hold – may be for a very long period. Global scene, NZD and commodity prices important

but inflation the real key.

CPI

1.7% y/y

for 2015

Q4

Benign global backdrop. Lower NZD to start to impact, with wage

pressures lifting.

Positive Negative

Neutral

Positive Negative

Neutral

Up Down

Neutral

Positive Negative

Neutral

mailto:[email protected]





ANZ Market Focus / 3 November 2014 / 2 of 17

ECONOMIC OVERVIEW

SUMMARY The RBNZ is on hold; a dovish tilt for sure but amidst

an implicit tightening bias. The failure of the NZD to

have a decent crack lower looks telling: elevated

ranges beckon. If price tension can’t be created over

the next two dairy auctions with limited supply then

this would be a worrying sign, and clearly signal an

even lower forecast milk price. Our internal anecdotes

have been more positive for forestry and the wider

pastoral sector of late, with October commodity prices

to provide a timely stocktake. Labour market data,

whilst lagging, is expected to confirm a stepping up of

the supply side, with annual wage inflation expected to

be moderate for this stage of the cycle.

FORTHCOMING EVENTS

ANZ Commodity Price Index – October (1:00pm,

Tuesday, November 4).

GlobalDairyTrade auction (early am, Wednesday,

November 5). The average winning price is expected to

hold close to USD2,650 per MT.

SNZ Household Labour Force Survey – Q3 (10:45am, Wednesday, November 5). A 0.4% increase

is expected for employment (2.9% y/y). The

unemployment rate is expected to ease to 5.5%, with a

small drop in the participation rate. Please see our

preview on page 6.

SNZ Quarterly Employment Survey – Q3 (10:45am, Wednesday, November 5). Private sector

average hourly earnings are expected to rise 1.5% q/q

(3.0% y/y). Small quarterly increases are expected for

filled jobs, with paid hours flat. Please see our preview

on page 6.

SNZ Labour Cost Index – Q3 (10:45am,

Wednesday, November 5). Private sector average

salary and wage rates are expected to climb 0.5% q/q

(1.9% y/y). Please see our preview on page 6.

WHAT’S THE VIEW? There will be the usual ex-post analysis for weeks to come as to what the RBNZ said and possibly meant. Markets (and participants) constantly

seek ex-post gratification (of otherwise) of views and

biases.

An implicit tightening bias remains, though with inflation at 1% it was hardly the time to be explicitly talking about raising rates. So while

some may have been surprised by the demure

comments and dropping of references to rates moving

up, we see little new news in it. Enough said. We’re on inflation watch; strength in the real side of

economy will be insufficient to get the RBNZ back into

play. Inflation needs to materialise; it can’t be taken on

faith as coming based on historical relationships with

the real economy, so consistent has been the

breakdown in such connections of late. Inflation and

consequent OCR hikes look a late 2015 story, on the

rather heroic assumption the global scene remains

stable.

FIGURE 1. CPI INFLATION FORECASTS (MPS projections)

Source: ANZ, RBNZ, Statistics NZ

What we believe more relevant from last week was the failure of the NZD to materially weaken amidst subtle changes in tone from the US Federal Reserve (perceived as more hawkish initially,

though we note the reaction of the bond and equity

market 48 hours later doesn’t gel with that) and a more dovish RBNZ. Yes, the NZD did move post the

BOJ bringing out the QE bazooka, but the trend since

then looks up! The USD benefited, but that looked like

a knee-jerk reaction: eventually the Fed will get

concerned again over dollar strength amongst the G3.

The game playing of seeking to competitively devalue

your currency continues. That’s the path of least

resistance when you can’t get real traction on the

economic reform front, which remains problematic in

Japan and Europe. With liquidity abundant, the allure of

yield and carry will be ongoing.

This backdrop makes it more difficult for the NZD to adjust materially lower despite the obvious

disconnect between the NZD and traditional

fundamentals such as commodity prices. There are also

some basic local realities.

The external position doesn’t actually look that bad so far, with the lagged impact of past

commodity price strength and forthcoming

statistical revisions likely to keep the Q3 annual

current account deficit low (we assume around

2.5% of GDP). Further ahead, however, the impact

of recent commodity price falls and strong capital

goods imports are likely to see a return to annual

merchandise trade deficits by the end of the year.

0

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11 12 13 14 15

%


ECONOMIC OVERVIEW

There is 300 basis points of interest rate carry still on offer. That means dips will be bought.

The economy is performing well, and few can claim the quinella of strong growth and low inflation; that’s goldilocks stuff, and hardly a

currency negative story despite it putting the RBNZ

into an extended holding pattern.

We’re buyers of microeconomics as a precursor to better macroeconomic outturns. We often get bemused with the market fixation

with central banks when ultimately it is those in

control of the microeconomic growth levers who

matter for growth. KISS applies. Buy economies

where economic leadership trumps populism: that

drives positive microeconomic tilts, the precursor

to better average macroeconomic outturns.

They’ve more chance of goldilocks sleeping in their

bed and seeing enduring lifts in asset price

performance as discount rates are invariably

normalised. New Zealand looks pretty good here.

FIGURE 2. UNEMPLOYMENT DIRECTION INDEX VERSUS CHANGE IN UNEMPLOYMENT RATE

Source: Dept of Labour, Seek, Trade Me, ANZ, NZ Herald,

Manawatu Standard, ODT, The Press, Waikato Times, Hawke's Bay

Today, Dominion Post, Statistics NZ.

This week’s releases are expected to confirm the further strengthening of the labour market. Surveyed employment intentions have come off the

boil somewhat compared to the start of the year, but

are still signalling solid increases in employment. The supply side of the labour market is also likely to have stepped up, with last week’s data confirming a close to 2% annual increase in the population of working age, the highest growth in around a decade. As well as more workers, a work-

ready mix of migration, budgetary considerations,

recent welfare initiatives, and the prospect of actually

finding a job are likely to keep labour force

participation elevated, with this combination implying

only a small decline expected in the Q3 unemployment

rate. That’ll be a good news story all round; falling

unemployment amidst solid demand and attracting

more people into the labour market.

FIGURE 3. WAGE AND CONSUMER PRICE INFLATION

Source: ANZ, Statistics NZ

A key issue for inflation is the extent to which the

strengthening employment backdrop flows through into

wages and consumer prices. While it’s just a matter of time before wage growth picks up, the key remains the extent to which this is matched by increases in productivity; regular readers will note

we’ve been banging on about improved productivity for

some time now. Across the key wage measures we

expect:

Annual private sector wage inflation on the LCI

measure to remain sub 2%, suggesting little

upward impetus on core inflation.

Annual wage inflation on the unadjusted LCI and

QES measures, which do not adjust for productivity

improvements, to be around 1½% higher, a

positive sign for labour income growth.

FIGURE 4. NZ COMMODITY PRICE INDICES (World currency terms)

Source: ANZ

It is more of a mixed bag on the commodity price front. Our internal anecdotes suggest that dairy

farmers are starting to come to grips with the pending

-1.0

-0.8

-0.6

-0.4

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0.4

0.6

0.8

1.0

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90 92 94 96 98 00 02 04 06 08 10 12 14

Quarte

r % p

pt

Quart

er

%

Monthly unemployment direction index (LHS)

Change in unemployment rate (RHS)

0

1

2

3

4

93 95 97 99 01 03 05 07 09 11 13

Annual %

change

Private Sector LCI inflation (ex-overtime) Core CPI Inflation

50

100

150

200

250

300

350

400

90 92 94 96 98 00 02 04 06 08 10 12 14

Index (

Jan 1

986 =

100)

Forestry (13%) Dairy (44%)

Meat, Skins, Wool (27%) Total


ECONOMIC OVERVIEW

cuts in incomes, but that optimism amongst sheep and

beef farmers remains high, particularly with the NZD

well off its July peaks. Forestry anecdotes are

improving, with expectations that Chinese demand will

strengthen. Our estimates suggest that despite NZD

falls, the currency remains restrictive for commodity

exporters and the wider export sector.

From there is it is on to the GlobalDairyTrade auction, which is expected to improve as the supply of key products is lowered again. However,

at present there remains a considerable gap between

current milk powder prices and those required to

deliver Fonterra’s $5.30/kg MS milk price for 2014/15.

Our current forecast is for a $4.85/kg MS milk price.

Fonterra will likely provide an update in early/mid-

December, so the next two auctions will be critical in

determining whether they can hold the current

forecast.

Our global supply growth indicator, which has been

good at picking turning points, is starting to point to a

turnaround in prices. However, it is still early days and production levels are still growing (the indicator below measures directional change).

The recent growth cycle for milk has been particularly

strong too, being nearly double that of the last 5 years

in recent months and 40% above the average growth

cycle.

FIGURE 5. MILK PRODUCTION VS GDT PRICES

Source: ANZ, Dairy Australia, DCANZ, CLAL, Datum, USDA

While known inventories in the US and Europe appear

to be low, indicating a quick turnaround in prices is

possible, it is the ‘known unknowns’ that you have to

worry about – the inventories for which we do not have

data. We suspect overall inventory levels are likely higher than this, and that New Zealand will have a lot of product to sell in the first half of next year. Indeed in New Zealand it is difficult to

reconcile the dramatic reduction in GDT trade volumes

in recent months and a very good start to the year for

milk flow (+4.5% year-to-date). Over the last two

auctions Fonterra has trimmed the forecast annual

volume of WMP to be offered through GDT by 58,400

MT. This is equivalent to 10% of the annual volume of

WMP that has been sold through GDT over the last

year, or more than the US exports in an entire year.

Such a fall usually coincides with an improvement in

prices. However, while Fonterra may be changing its

product mix and selling through other channels, which

would be beneficial for the outlook, we suspect over

the season to date some inventory build has occurred

as they have tried to match supply with customer

demand and create price tension. If price tension can’t be created over the next two auctions then this would be a worrying sign, and clearly signal a lower forecast milk price than the $5.30/kg MS that is currently penciled in (and our own forecast

of $4.85) and would be telling for how we start to think

about the 2015/16 payout too (which is arguably more

important given cash-flow prospects in the second half

of 2015).

The other unknown is how supply growth will evolve. Usually low farm-gate prices would see supply

growth slow, but over the next few months this might

not be the case. Having driven much of the country in

the last 10 days, we suspect New Zealand supply will

remain strong until the second half (if not last quarter)

of the season. In Europe and the US lower farm-gate

prices are yet to fully filter through. In the US while

prices of key products are falling, their domestic

demand picture remains strong for key products. In

Europe politics are at play, with the Russian sanctions

distorting the market. European manufacturers haven’t

dropped farm-gate prices anywhere near where

wholesale dairy products prices have fallen to. This is

largely due to manufacturers arguing for increased

subsidy support while Russian sanctions are in force

(until August next year), but wanting to maintain

through-put in new capacity that was added for the

end of quotas next April. They are therefore producing

more milk than markets currently require. The other

factor is lower Northern Hemisphere grain prices are

keeping margins healthy.

On the demand side, anecdotes suggest there has been strong buying from markets outside the two biggest global importers, China and Russia. Demand elasticity varies by market, but the current

low prices should be encouraging a lift in demand from

all countries, but especially the less wealthy. But

without stronger demand from the big two, in the face

of plentiful supply it is difficult to see a strong price

turnaround before the middle of 2015 when the New

Zealand and Australian seasons conclude.

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Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

% c

hange y

/y

% c

hange y

/y

Main exporter production change rolling 4 months (adv 2 mths, LHS)

GDT price rolling 4 mth change (RHS)


ECONOMIC OVERVIEW

RECENT LOCAL DATA ANZ Business Outlook – October. General business

confidence was up 14pts to +27. Firms’ own activity

expectations were unchanged at +38, while

employment (+19), investment (+16) and profit

expectations (+17) eased. Pricing intentions firmed to

+24.

RBNZ OCR Review – October. The OCR was held at

3.5%. “A period of assessment remains appropriate

before considering further policy adjustment”.

SNZ Dwelling Consents – September. The number

of residential consents was down 12.2% sa m/m (-

10.4% sa m/m ex-apartments). Non-residential

consent values rose 6% sa to $473m.

RBNZ Credit Aggregates – September. Resident

private sector credit (ex-repo) rose 4.5% y/y.

Agricultural credit slowed to 2.9% y/y, household credit

eased to 4.8% y/y, and business credit firmed to 4.2%

y/y.


LABOUR MARKET PREVIEW

SUMMARY A solid Q3 employment report is expected from both

the QES and HLFS surveys, with only the growing

working age population and still-high labour force

participation preventing a larger fall in the HLFS

unemployment rate. Annual wage inflation is expected

to firm, but remain contained for this stage of the

cycle. There should be little from this week’s labour

market reports to budge the RBNZ from their firmly on-

hold OCR stance. The labour market may point to

firming inflation pressure down the track, but the onus

is now on inflation to actually show up.

LABOUR MARKET – 2014Q3 LCI/QES/HLFS: Wednesday 5 November, 10:45am

June 2014 Quarter Expectations ANZ Consensus LCI salary and ordinary time wage rates (private sector)

+0.5% q/q +1.9% y/y

+0.5% q/q

+1.9% y/y

QES salary and wage ordinary

time (private sector)

1.5% q/q

+3.0% y/y

1.1% q/q

+2.6% y/y

HLFS unemployment rate (sa) 5.5% 5.5%

HLFS participation rate (sa) 68.8% 69%

HLFS employment growth +0.4% q/q +2.9% y/y

+0.6% q/q +3.0% y/y

QES filled jobs +0.4% q/q

+2.4% y/y --

IMPROVING SIGNS Labour market indicators suggest a slightly less robust (but still solid) set of employment figures for Q3. Employment intentions from the ANZBO

survey (+22 for Q3) have continued to come off the

boil from the strong start of the year, but remain

elevated. Experienced employment readings from the

Q3 QSBO fell to -0.91, a 21-month low, but

employment expectations rose to +18, the highest in

close to a decade. Despite a July blip, job

advertisements moved up in August and September

(+13% y/y) and suggest a moderate outlook for

employment growth. Weighing it all up, a 0.4% rise is

expected for Q3 HLFS employment (2.9% y/y), with a

similar quarterly increase in filled jobs in the QES

(+2.4% y/y).

Broadly flat outturns are expected for HLFS hours

worked and QES paid hours. The latter is a direct input

into GDP, and we expect some recoil in services sector

paid hours following H1 strength. We accordingly

expect a services-led slowing in Q3 GDP growth.

An increase in the demand for labour appears to be matched by an increase in supply. Last week’s

data confirmed a 0.5% sa quarterly increase in the

working age population, with the 1.9% annual lift the

highest in close to a decade. Rising net immigration

has largely accounted for the lift, with a high proportion

likely to be in the labour force, either as full-time or

part-time workers. Slightly more than half of the rise in

annual net PLT immigration has come from fewer

departures, with a further quarter or so due to

increasing PLT arrivals of New Zealand citizens, who

can be expected to integrate rapidly. We also expect

that budgetary considerations, recent welfare

initiatives, and the good prospects of actually finding a

job are likely to keep labour force participation at historically high levels.

We expect a small fall in the unemployment rate from 5.6% to 5.5% of the labour force, with falls

consistent with the directional signal suggested by our

Unemployment Direction Index. Numbers on the

jobseekers allowance who were work ready fell to

66,500 persons sa in Q3, a 5½ year low.

The key issue for inflationary pressure is how much spare labour market capacity exists and

how well it is suited to employers’ needs. Survey

measures of skill shortages remain elevated,

suggesting capacity limits remain acute. However,

weekly hours per worker (33.7) remain below historical

averages (34.6), suggesting more demand can be met

from the existing workforce, although this depends

crucially on capacity being available where the demand

is. Solid growth in the working age population and high

workforce participation are expected to provide a

growing pool of labour over the next couple of years,

with our expectation that the unemployment rate will

hover in a 5 to 5½% range by early 2016.

We are past the trough but we expect the climb in annual wage inflation to be modest for this stage of the cycle. Low headline inflation has helped

constrain wage inflation, and as the LCI measures

adjust for the quantity and quality of work, improving

productivity could be another contributor. We expect

wage pressure to be more acute in certain pockets (eg.

construction) but not to permeate more generally

throughout the economy. All the same, we will be

keeping a close watch on the distributional wage

measures. Our expectation is that the wage measures

will not provide a smoking gun to prompt OCR

increases until late 2015 at the earliest.

MARKET IMPLICATIONS We don’t expect there to be too much in this week’s labour market report to prompt a market reaction. We expect the labour market over the

coming year to point to firming inflation pressure down

the track. That’s a necessary but not sufficient

condition to bring the RBNZ into play. After two years

of downward surprises, inflation needs to show up too.



SUMMARY

Short end interest rates have now largely adjusted to

last week’s very neutral OCR Review, with market

expectations now close to our forecasts. But while we

see limited further downside, equally, we also see no

catalyst for a move higher with the RBNZ’s tightening

bias predicated on a pickup in inflation, which has yet

to appear and won’t with any vigour unless the NZD

moves lower. Globally, the focus is on the Bank of

Japan, which has stepped in where the Fed left off,

pledging to increase its holdings of bonds by JPY 30

trillion (around USD 270bn) per annum. This surprise

development should help keep a lid on long end yields

here and abroad.

THEMES The market now has the first OCR hike priced in by

around February next year (i.e. 15 months from

now). While the market has overshot we’re taking

a neutral view for now. Catalysts for the front-end

to correct higher look a month away.

Globally, all eyes are on inflation, with the timing of

the Fed’s next move now tied to inflation (now that

the labour market is in shape).

The BOJ has stepped in where the Fed has left off,

embarrassing the ECB in the process. Given the

interest Japan has shown in NZGS, we view this as

a significant announcement.

This week’s NZGS linker syndication is the main

focus. We expect the deal to go well.

PREFERRED STRATEGIES – INVESTORS

KEY VIEWS – FOR INVESTORS GAUGE DIRECTION COMMENT

Duration Neutral/

Bullish

Hard to see bond yields in NZ

rising while inflation remains low

and with BOJ stepping up.

2s10s Curve Neutral/

Flatter

Limited scope for front end to

keep going, long end has

potential though.

NZ-US 10yr

spread

Neutral/

narrower

QE announcements have

typically been good for spreads.

Swap

spreads Neutral

Flatter curve should attract

paying, but long end bond

supply a concern.

Short end interest rates have fallen reasonably sharply over the past month, with the 2yr swap now

about 20bps lower than it was a month ago. That may

not sound like much, but it pretty well unwinds the 2014 rise in yields and puts this bellwether indicator of interest rates back where it was before the RBNZ started lifting the OCR. As such,

it’s a significant move, and having played it from the

long side, we now see merit in starting to take profit on

received trades. We do see scope for the front end to

drift a touch lower given the very implied and

conditional nature of the RBNZ’s tightening bias

(predicated as it is on the Bank’s assessment that

“inflation is expected to increase” on the back of,

among other things, a “further significant depreciation”

of the exchange rate). If those things don’t happen, all

bets are off, so expect the market to trade with a good

deal of caution till the end of the year.

For the domestic long end, strategically it’s all about global factors (which we discuss in more detail overleaf) and supply. G3 central bank actions

remain supportive for bonds and spreads, and with the

RBNZ on hold, we see limited upside for long end bond

yields. However, in the near term, we expect the

supply issue to dominate, with the ongoing syndication

of $1.5bn of NZGS 2035 linkers (more on that later)

likely to elicit switching interest (out of nominals), and

nominal bond issuance likely to centre on the NZGS

2027 bond.

We expect this week’s 2035 linker syndication to go well. In our view, the bond is cheap on a BEI basis

relative to both inflation expectations and the RBNZ’s

2% inflation target. Not only are BEIs at the year’s low

going into the issue, but the BEI curve is inverted, with

the 2030 BEIs cheaper than the 2025 BEI. We’re

surprised at that given most expect inflation to

undershoot near term, but not forever. Indeed, if the

latter was true, among other things, the NZD would be

much higher, and the RBNZ wouldn’t be raising rates.

FIGURE 1: LINKER BEIs VS INFLATION EXPECTATIONS

Source: ANZ Research, RBNZ, Bloomberg

PREFERRED STRATEGIES – BORROWERS

As we noted in last week’s Borrower’s Strategy, long-end interest rates represent the best value on the curve and we favour adding to hedges at current levels. Recent developments like the Bank of Japan’s

decision to further expand its balance sheet do add

some caution to our view (as this will likely help keep

global long term interest rates lower for longer). But it

is also a reminder that NZ’s long-term interest rates

1.5

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Mar 13 Sep 13 Mar 14 Sep 14

NZGBi 9/25 BEI "NZGBi 9/30" 1yr Ahead 2yrs Ahead



are this low thanks largely to global, rather than

domestic factors, and as such it’s something of a “gift”.

We’d normally have a much steeper curve at this point

in the growth cycle, but with the curve this flat, we see

merit in adding to outright long-end hedges. We also

like blend and extend strategies and optionality.

Last week’s OCR Review was very balanced and in our view suggests there is limited value in short term hedging. The Bank has hung up its rifle

and we expect policy to remain on hold till the end of

next year. Future moves are dependent on the

evolution of inflation, the NZD and commodity prices.

We see little point in short-term hedges in this

environment. Floating is still the cheapest form of debt

and we favour keeping short-term debt floating rather

than fixed for 2-3 years. Time is on your side.

KEY VIEWS – FOR BORROWERS

GAUGE VIEW COMMENT

Hedge ratio Extend term

of cover

Blend-and-extend hedges.

Add to 5-10yr cover on dips.

Value Long end

still cheap

Global rates remain low and

the yield curve flat.

Uncertainty Elevated Global inflation, geopolitics

and the Fed the key issues.

GLOBAL SCENE Two factors dominate our thinking as we ease out

of last week (pun fully intended – noting the Bank of

Japan’s actions). The first is the G3 central banking backdrop, with all eyes on the Bank of Japan’s

decision to step in where the Fed left off; and the second is the global inflation outlook.

On the inflation front, there isn’t much new to add here

this week, other than the fact that the two central banks we watch the most (the Fed and the RBNZ) have now effectively tied their next move to what happens to inflation. Having satisfied itself that it has

made solid progress in achieving the jobs side of its

mandate, the Fed said it like this “if incoming

information indicates faster progress toward the

Committee's employment and inflation objectives than

the Committee now expects, then increases in the

target range for the federal funds rate are likely to

occur sooner than currently anticipated. Conversely, if

progress proves slower than expected, then increases

in the target range are likely to occur later”. That’s

completely consistent with everything Chair Yellen has

said in recent months, and clearly ties policy to

inflation, so you can just about forget about payrolls.

In New Zealand’s case, as we noted earlier, the crucial phrase was “inflation is expected to increase as the expansion continues”. If it doesn’t (and we would imagine a decent fall in the

NZD is needed too) then all bets are off.

But the real big news of last week came from Japan, not the Unites States, for the Fed was

universally expected to end QE. We don’t want to get

too carried away – after all, BOJ is buying Japanese

government bonds (JGBs) at a slower pace than the

Fed was. But by upping the pace of buying from JPY 50

trillion a year to JPY 80 trillion a year (an increase

equivalent to around USD 270bn annually, or USD

22.5bn per month), the BOJ has effectively offset the Fed’s September and October “tapers” (which

amounted to USD 25bn in total). However one views it, we now have more bond buying than we did a week ago, and given the interest Japanese investors have shown in the NZ bond market of late, and how significantly the BOJ will “crowd out” primary issuance of JGBs (and JGB sales by public pension funds), we would expect fund flows to keep downward pressure on high quality peripheral markets like New Zealand and Australia. The BOJ’s actions also subtly put more

pressure on the ECB to step up its quantitative easing

programme.

MARKET PRICING Market pricing has moderated significantly in the past week, with a bull 25bp hike not priced in till February. That’s slightly beyond when we expect the

next move to be, but given still generous roll and carry

on offer, and the prospect of such a long period of

inaction, we’d expect the market to trade below what

might be a reasonable forecast. We can’t see the RBNZ moving till inflation actually materialises,

so in the meantime, markets will likely give the

downside the benefit of the doubt. Note that in

Australia, during long periods of policy stability markets

have toyed with cuts. We doubt that will happen here

(well, not before we get Q4 CPI data anyway), but if

global inflation does continue to surprise to the

downside, we wouldn’t rule it out.

FIGURE 2: OCR EXPECTATIONS

Source: ANZ Research, Bloomberg

3.40

3.60

3.80

4.00

4.20

4.40

4.60

4.80

Nov 14 May 15 Nov 15 May 16 Nov 16 May 17 Nov 17

Rate

(%

)

ANZ's OCR Forecasts

Market implied forward 3mth bill rates

RBNZ 90 day bill projections (Sep 2014 MPS)


CURRENCY STRATEGY

SUMMARY The failure of the NZD to drive materially lower on a

more upbeat Fed and dovish RBNZ looks significant;

NZD should remain elevated relative to history. With

the BoJ providing more liquidity and supporting risk

assets and with NZ’s growth and yield credentials

sound, the NZD will find enthusiastic supporters. The

divergence in US data and global events mean it is on

the NZD/EUR and NZD/JPY crosses where this support

should be most evident. NZD/AUD also looks like it

should strengthen, although the technical set-up

suggests the current level needs to hold.

TABLE 1: KEY VIEWS CROSS WEEK MONTH YEAR

NZD/USD ↔/↑ Consolidation. Expect USD to

strengthen.

NZD/AUD ↔/↑ Defining a new

range. Range trade.

NZD/EUR ↔/↑ ECB action? EUR remains weak.

NZD/GBP ↔ GBP strength. GBP resurgence.

NZD/JPY ↔/↑ Strengthening. Yen weakness.

Domestic data should support the NZD, but offshore

data will set direction.

THEMES AND RISKS As global commodities continue to decline the first

GDT auction of November is important for NZD.

US activity looks set to continue to strengthen, the

question is will Japan and Europe provide an offset

that the Fed can’t ignore?

Should the ECB announce further methods to

expand its balance sheet, currencies with yield will

find support.

Domestically, the Q3 employment report should

show the NZ economy is in the “Goldilocks” zone.

TABLE 2: KEY UPCOMING EVENT RISK EVENT WHEN-NZDT LIKELY IMPACT CNY: Non-manf. PMI Mon 14:00 NZD ↑

EUR: Manuf. PMI Mon 22:00 NZD/EUR ↓

GBP: Manuf. PMI Mon 22:30 NZD/GBP ↓

USD: ISM Tue 04:00 NZD/USD ↔/↓

AUD: Retail sales Tue 13:30 NZD/AUD ↑

AUD: RBA rates Tue 16:30 NZD/AUD ↔/↓

NZD: GDT auction Wed AM NZD ↑↓

NZD: Q3 employment Wed 10:45 NZD ↑

EUR: Services PMI Wed 22:00 NZD/EUR ↓

GBP: Services PMI Wed 22:30 NZD/GBP ↓

USD: ADP employment Thu 02:15 NZD/USD ↓

USD: ISM non-manuf. Thu 04:00 NZD/USD ↔/↓

AUD: Oct employment Thu 13:30 NZD/AUD ↑

GBP: BoE rates Fri 01:00 NZD/GBP ↔/↓

EUR: ECB rates Fri 01:45 NZD/EUR ↓

AUD: SOMP Fri 13:30 NZD/AUD ↓

CNY: Trade balance Fri pm NZD ↑

USD: Payrolls Sat 02:30 USD ↑

EXPORTERS’ STRATEGY

We favour being neutrally hedged (to benchmark) at

current levels, although downside hedges are prudent.

IMPORTERS’ STRATEGY We would target levels close to 0.80 for further

hedging.

DATA PULSE

The BoJ surprised markets, providing enough

liquidity to offset the reduction in Fed-induced

liquidity. The fact the BoJ ‘twisted’ – lengthened

duration – and moved up the credit curve is a powerful

signal for global risk sentiment.

The USD found ample support from a hawkish Fed

whom ended their QE program. Fundamental data in

the form of the Richmond and Chicago Fed also

showed strong positive momentum. Q3 employment

costs maintained strength, surprising markets;

perhaps the long awaited increase in wage pressure is

finally arriving?

RBNZ are nearly neutral, with markets moving to

erode some of the considerable yield advantage. NZ

business confidence bounced, reversing election

caution. Finally table F5 showed the RBNZ is happy with the current rate of change on the NZD,

despite still classifying the NZD as overvalued.

European 2015 budgets were passed and German,

Italian, and EU-wide CPI picked up slightly. However,

the EUR fell on actions from the FOMC and BoJ,

leaving the focus squarely on the ECB this week.

TABLE 3: NZD VS AUD: MONTHLY GAUGES GAUGE GUIDE COMMENT

Fair value ↔ Close to fair value.

Yield ↔/↑ NZ offers more yield.

Commodities ↔ Both countries’ prices are China

dependant.

Data ↔ Similar trends.

Techs ↔/↑ In a 0.885-0.915 range.

Sentiment ↔ Sentiment flip-flopping.

Other ↑ Relative employment.

On balance ↔/↑ Supported on 0.88. TABLE 4: NZD VS USD: MONTHLY GAUGES

GAUGE GUIDE COMMENT Fair value ↔/↓ Still expensive.

Yield ↑ Yield advantage not going away.

Commodities ↔/↑ Dairy stabilised and other

commodities picking up.

Risk aversion ↓/↑ NZD still subject to “risk off”, but

US risk aversion benefits NZD.

Data ↓ US data looking strong.

Techs ↔/↑ Support is strong below.

Other ↔ Markets cautious after rates ‘flash

crash’.

On balance ↔/↑ Should find yield related support.


CURRENCY STRATEGY

TECHNICALS FIGURE 1. NZD/USD DAILY CANDLES WITH RSI AND MA

Support looks likely to be tested, but looks strong from 0.7680 to 0.7730. However, should this break,

the next level of support is not until 0.75. Resistance now looks very well defined at 0.80-0.8040.

Technically NZD is still consolidating, but it should be

noted that this attempt on support is from levels that

are not oversold.

FIGURE 2. NZD/AUD DAILY CANDLES WITH RSI AND MA

NZD/AUD is also testing support at 0.8830-0.8850 and if it holds will define the new range at

0.88-0.9150. However, should support be found

wanting, the next support is not until 0.8650-0.87. A bounce from this region would be powerful

and see resistance – at 0.91 – tested in short order.

TABLE 5: KEY TECHNICAL ZONES CROSS SUPPORT RESISTANCE

NZD/USD 0.7680 - 0.7730

0.7450 - 0.7500

0.8000 - 0.8040

0.8180 - 0.8200

NZD/AUD 0.8830 - 0.8850

0.8650 – 0.8700 0.9130 – 0.9150

NZD/EUR 0.6000 – 0.6040 0.6400 - 0.6430

NZD/GBP 0.4740 - 0.4760 0.4980 – 0.5020

NZD/JPY 86.00 – 86.50 89.80 – 90.50

POSITIONING Positioning remains very much USD long, with EUR

shorts increased and JPY longs reduced; a

demonstration of how markets get it wrong. NZD

shorts remained small, but were increased.

GLOBAL VIEWS Action by the BoJ has ramifications for all currencies. The BoJ surprised markets with its

willingness to increase an already large program as a

pre-emptive move to combat a return to a deflationary

mind-set. This flood of liquidity is enough to offset the reduction in liquidity from the final FOMC taper, and suggests that the market hypothesis of a

flight of capital due to the withdrawal of US liquidity will

be – at the very least – slowed by the provision of

liquidity from other sources. The next obvious focus will

be the ECB, who are already in the process of

increasing their own balance sheet (by EUR1trn) by

actively purchasing covered bonds. Any further

stimulus by the ECB would further reduce concerns

over USD liquidity withdrawal. This should see the NZD

particularly in demand against JPY and EUR. More broadly it should support EM and Asia “risk” currencies.

FORWARDS: CARRY AND BASIS FIGURE 3. NZD/USD SHORT BASIS CURVE

Implied cash (through forwards) remains stable and

has led to a contraction of short end basis. There has

been a notable outperformance by 1 month basis. ANZ

believes we are near the floor and would use this

opportunity to cover any short NZD funding.

FIGURE 4. RELATIVE ATTRACTION OF THE FWD CURVE

Sources: ANZ, Bloomberg, Reuters

0

5

10

15

20

25

30

O/N 2m 4m 6m 8m 10m 12m

Basis

MonthsBasis Last Week

0.95

1.00

1.05

1.10

1.15

O/N 1m 2m 3m 4m 5m 6m 7m 8m 9m 10m 11m 12m

Rela

tive V

alu

e

MonthsRelative Value Last Week


DATA EVENT CALENDAR

DATE COUNTRY DATA/EVENT MKT. LAST NZ TIME

3-Nov AU AiG Perf of Mfg Index - Oct -- 49.4(a) 11:30

AU TD Securities Inflation MoM - Oct -- 0.2%(a) 12:30

AU TD Securities Inflation YoY - Oct -- 2.3%(a) 12:30

AU Building Approvals MoM - Sep -1.0% 3.0% 13:30

AU ANZ Job Advertisements MoM - Oct -- 0.9% 13:30

AU Building Approvals YoY - Sep -0.9% 14.5% 13:30

CH Non-manufacturing PMI - Oct -- 54 14:00

CH HSBC China Manufacturing PMI - Oct F 50.4 50.4 14:45

AU Commodity Index YoY - Oct -- -16.8% 18:30

GE Markit/BME Manufacturing PMI - Oct F 51.8 51.8 21:55

EC Markit Eurozone Manufacturing PMI - Oct F 50.7 50.7 22:00

UK Markit PMI Manufacturing SA - Oct 51.4 51.6 22:30

4-Nov US Markit Manufacturing PMI - Oct F 56.2 56.2 03:45

US ISM Manufacturing - Oct 56.2 56.6 04:00

US ISM Prices Paid - Oct 58.0 59.5 04:00

US Construction Spending MoM - Sep 0.7% -0.8% 04:00

AU ANZ-RM Consumer Confidence Index - 2-Nov -- 114.6 11:30

NZ ANZ Commodity Price - Oct -- -1.3% 13:00

AU Trade Balance - Sep -1775M -787M 13:30

AU Retail Sales MoM - Sep 0.3% 0.1% 13:30

AU Retail Sales Ex Inflation QoQ - 3Q 0.5% -0.2% 13:30

AU RBA Cash Rate Target - Nov 2.50% 2.50% 16:30

UK Markit/CIPS Construction PMI - Oct 63.5 64.2 22:30

EC PPI MoM - Sep 0.0% -0.1% 23:00

EC PPI YoY - Sep -1.5% -1.4% 23:00

5-Nov US Trade Balance - Sep -$40.2B -$40.1B 02:30

US ISM New York - Oct -- 63.7 03:45

US Factory Orders - Sep -0.6% -10.1% 04:00

US IBD/TIPP Economic Optimism - Nov 46.0 45.2 04:00

NZ Unemployment Rate - 3Q 5.5% 5.6% 10:45

NZ Employment Change QoQ - 3Q 0.6% 0.4% 10:45

NZ Employment Change YoY - 3Q 3.0% 3.7% 10:45

NZ Participation Rate - 3Q 69.0% 68.9% 10:45

NZ Pvt Wages Ex Overtime QoQ - 3Q 0.5% 0.6% 10:45

NZ Pvt Wages Inc Overtime QoQ - 3Q 0.5% 0.6% 10:45

NZ Average Hourly Earnings QoQ - 3Q 1.1% 0.5% 10:45

AU AiG Perf of Services Index - Oct -- 45.4 11:30

CH HSBC Services PMI - Oct -- 53.5 14:45

CH HSBC Composite PMI - Oct -- 52.3 14:45

GE Markit Services PMI - Oct F 54.8 54.8 21:55

GE Markit/BME Composite PMI - Oct F 54.3 54.3 21:55

EC Markit Eurozone Services PMI - Oct F 52.4 52.4 22:00

EC Markit Eurozone Composite PMI - Oct F 52.2 52.2 22:00

UK Markit/CIPS Services PMI - Oct 58.5 58.7 22:30

UK Markit/CIPS Composite PMI - Oct 57.0 57.4 22:30

EC Retail Sales MoM - Sep -0.8% 1.2% 23:00

EC Retail Sales YoY - Sep 1.4% 1.9% 23:00

UK Halifax House Prices MoM - Oct 0.4% 0.6% 5-8 Nov

Continued on following page


DATA EVENT CALENDAR

Key: AU: Australia, EC: Eurozone, GE: Germany, JN: Japan, NZ: New Zealand, UK: United Kingdom, US: United States, CH: China. Source: Dow Jones, Reuters, Bloomberg, ANZ Bank New Zealand Limited. All $ values in local currency Note: All surveys are preliminary and subject to change

DATE COUNTRY DATA/EVENT MKT. LAST NZ TIME

6-Nov US MBA Mortgage Applications - 31-Oct -- -6.6% 01:00

US ADP Employment Change - Oct 220K 213K 02:15

US Markit Services PMI - Oct F 57.1 57.3 03:45

US Markit Composite PMI - Oct F -- 57.4 03:45

US ISM Non-Manf. Composite - Oct 58.0 58.6 04:00

NZ QV House Prices YoY - Oct -- 6.4% 12:00

AU Employment Change - Oct 10.0K -29.7K 13:30

AU Unemployment Rate - Oct 6.1% 6.1% 13:30

AU Full Time Employment Change - Oct -- 21.6K 13:30

AU Part Time Employment Change - Oct -- -51.3K 13:30

AU Participation Rate - Oct 64.5% 64.5% 13:30

GE Factory Orders MoM - Sep 2.2% -5.7% 20:00

GE Factory Orders WDA YoY - Sep -1.0% -1.3% 20:00

GE Markit Construction PMI - Oct -- 50 21:30

GE Markit Retail PMI - Oct -- 47.1 22:10

EC Markit Eurozone Retail PMI - Oct -- 44.8 22:10

UK Industrial Production MoM - Sep 0.4% 0.0% 22:30

UK Industrial Production YoY - Sep 1.6% 2.5% 22:30

UK Manufacturing Production MoM - Sep 0.3% 0.1% 22:30

UK Manufacturing Production YoY - Sep 2.8% 3.9% 22:30

7-Nov UK Bank of England Bank Rate - Nov 0.5% 0.5% 01:00

UK BOE Asset Purchase Target - Nov £375B £375B 01:00

EC ECB Main Refinancing Rate - Nov 0.05% 0.05% 01:45

EC ECB Deposit Facility Rate - Nov -0.2% -0.2% 01:45

EC ECB Marginal Lending Facility - Nov 0.3% 0.3% 01:45

US Initial Jobless Claims - 1-Nov 285K 287K 02:30

US Continuing Claims - 25-Oct 2355K 2384K 02:30

US Nonfarm Productivity - 3Q P 1.4% 2.3% 02:30

US Unit Labor Costs - 3Q P 0.7% -0.1% 02:30

UK NIESR GDP Estimate - Oct -- 0.7% 04:00

AU AiG Perf of Construction Index - Oct -- 59.1 11:30

AU Foreign Reserves - Oct -- A$60.9B 18:30

GE Industrial Production SA MoM - Sep 2.0% -4.0% 20:00

GE Industrial Production WDA YoY - Sep -0.6% -2.8% 20:00

GE Trade Balance - Sep 19.0B 14.0B 20:00

GE Current Account Balance - Sep 18.0B 10.3B 20:00

GE Exports SA MoM - Sep 2.3% -5.8% 20:00

GE Imports SA MoM - Sep 1.1% -1.3% 20:00

UK Visible Trade Balance GBP/Mn - Sep -£9500 -£9099 22:30

UK Trade Balance Non EU GBP/Mn - Sep -£3700 -£3587 22:30

UK Trade Balance - Sep -£2300 -£1917 22:30

8-Nov US Change in Nonfarm Payrolls - Oct 235K 248K 02:30

US Change in Manufact. Payrolls - Oct 10K 4K 02:30

US Unemployment Rate - Oct 5.9% 5.9% 02:30

US Labor Force Participation Rate - Oct -- 62.7% 02:30

US Consumer Credit - Sep $16.00B $13.53B 09:00


LOCAL DATA WATCH

The week’s labour market data is expected to reflect a healthy demand for labour but for (rising) wage inflation to

remain contained for this stage of the cycle. This week’s dairy auction is finely balanced. A low inflation backdrop is

expected to keep pending OCR hikes on ice, with our expectation of no change until a 25bp hike in December 2015.

DATE DATA/EVENT ECONOMIC SIGNAL COMMENT

Tue 4 Nov

(1:00pm)

ANZ Commodity Price

Index – Oct - - - -

Wed 5 Nov

(early am)

GlobalDairyTrade

auction Flat

Finely balanced. Increasing demand should see prices soon start

to find a floor and lift by the end of the year/early 2015.

Wed 5 Nov

(10:45am) HLFS – Q3 Tightening

A 0.4% increase is expected for employment (+2.9% y/y).

Unemployment rate to ease to 5.5%.

Wed 5 Nov

(10:45am) QES – Q3 Moderate

A 0.4% quarterly rise in filled jobs is expected. Annual wage

inflation appears to be close to its trough.

Wed 5 Nov

(10:45am) LCI – Q3 Rising

A 0.5% increase is expected for salary and ordinary time wage

rates (+1.9% y/y). Still contained for this stage of the cycle.

10-14 Nov REINZ Housing

market - Oct Easing off

Nationwide prices to flat-line (easing to +3% y/y). Sales

volumes up slightly (-10% y/y). Days to see in high 30s.

Tue 11 Nov

(10:00am)

ANZ Truckometer –

October - - - -

Tue 11 Nov

(10:45am) ECT - Oct Up

A 0.6% rebound from the flat September outturn is expected,

with higher monthly increases for core retail spending.

Wed 12 Nov

(9:00am)

RBNZ Financial

Stability Report Sound

High dairy, household debt concerns aside, system sound. LVR

restrictions working will remain in place for now.

Thur 13 Nov

(10:30am)

BNZ Business NZ –

PMI – Oct Late 50’s

Production and new orders likely to remain above headline PMI.

Construction supports; NZD less problematic given recent falls.

Thur 13 Nov

(10:45am) Food Price Index – Oct UP

A 0.4% rebound from the sharp September fall expected. The

global soft commodity backdrop remains benign.

Thur 13 Nov

(1:00pm) ANZ Roy Morgan

Consumer Confidence - - - -

Mon 17 Nov

(10:30am)

BNZ Business NZ –

PSI – Oct Mid-50’s Services to benefit from solid domestic backdrop.

Mon 17 Nov

(10:45am) Retail Trade – Q3 Up A 0.8% increase in retail values and volumes expected.

Wed 19 Nov

(early am)

GlobalDairyTrade

auction Flat

Finely balanced. Increasing demand should see prices soon start

to find a floor and lift by late 2014/early 2015.

Thur 20 Nov

(10:00am) ANZ Job Ads - - - -

Thur 20 Nov

(10:45am) Producer Prices – Q3 Commodity hit

Falls in wholesale electricity, export commodity prices and oil to

deliver flat quarterly outturns. Farm expenses down.

Thur 20 Nov

(10:45am)

Capital Goods prices –

Q3 Flat

A flat outturn expected (-0.5% y/y). Benign prices for imported

investment vs. high construction cost inflation.

Thur 20 Nov

(1:00pm) ANZ Regional Trends - - - -

Fri 21 Nov National Accounts –

March 2014 year

Moving statistical

goalposts

Adoption of 2008 SNA, with R&D counted as investment, will

boost level of GDP and improve nationwide/household saving.

Mon 24 Nov

(10:45am)

International Travel

and Migration - Oct Coming in

A net PLT inflow of 4,500 persons sa expected (circa 47k).

Visitor arrivals +5% y/y and slowing.

Tue 25 Nov

(3:00pm)

RBNZ Survey

Expectations – Q4 Contained

2-year-ahead forecast for CPI likely to hover just above target

midpoint. Lower petrol prices flag direction of risk.

On balance Data watch Tracking okay, but more downside risks are apparent than a few months ago.


KEY FORECASTS AND RATES

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16

GDP (% qoq) 0.7 0.5 0.8 0.8 0.7 0.7 0.6 0.6 0.6 0.6

GDP (% yoy) 3.9 3.3 3.1 2.9 2.8 3.0 2.8 2.7 2.6 2.6

CPI (% qoq) 0.3 0.3 0.0 0.5 0.4 0.5 0.3 0.7 0.6 0.7

CPI (% yoy) 1.6 1.0 0.9 1.1 1.3 1.4 1.7 1.8 2.0 2.2 Employment

(% qoq) 0.4 0.4 0.4 0.4 0.4 0.4 0.3 0.2 0.3 0.3

Employment

(% yoy) 3.7 2.9 2.2 1.7 1.7 1.6 1.5 1.3 1.1 1.0

Unemployment Rate

(% sa) 5.6 5.5 5.4 5.3 5.3 5.3 5.3 5.3 5.3 5.3

Current Account (% GDP)

-2.5 -2.5 -3.3 -4.5 -5.2 -5.7 -5.9 -5.9 -5.8 -5.7

Terms of Trade

(% qoq) 0.3 -3.5 -4.7 -3.6 -2.1 0.2 0.2 0.3 0.2 0.2

Terms of Trade

(% yoy) 12.5 1.1 -6.0 -11.0 -13.2 -9.9 -5.3 -1.4 1.0 1.0

Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14

Retail ECT (% mom) -0.5 0.9 0.1 0.3 1.2 0.1 -0.1 0.6 -0.1 --

Retail ECT (% yoy) 6.1 5.7 5.1 5.7 7.6 4.0 5.1 4.1 5.4 --

Credit Card Billings

(% mom) 1.2 0.1 1.2 -2.9 3.1 0.7 -0.8 0.7 0.2 --

Credit Card Billings

(% yoy) 8.5 5.0 6.6 2.4 6.6 6.0 4.5 4.2 4.4 --

Car Registrations

(% mom) 2.5 4.0 3.2 -0.4 3.5 3.1 1.9 -1.2 3.5 --

Car Registrations

(% yoy) 20.2 23.6 26.8 17.5 21.7 25.2 16.6 18.7 31.1 --

Building Consents

(% mom) -10.1 -1.5 8.7 2.6 -4.5 5.0 -2.2 -0.7 -12.2 --

Building Consents

(% yoy) 23.8 15.4 36.8 20.6 12.2 22.3 22.9 19.7 0.9 --

REINZ House Price

Index (% yoy) 7.7 8.2 9.2 8.5 6.5 6.3 5.9 4.8 4.1 --

Household Lending

Growth (% mom) 0.4 0.4 0.4 0.3 0.4 0.4 0.3 0.3 0.3 --

Household Lending

Growth (% yoy) 5.7 5.7 5.6 5.4 5.2 5.2 5.1 5.0 4.8 --

ANZ Roy Morgan

Consumer Conf. 135.8 133.0 132.0 133.5 127.6 131.9 132.7 125.5 127.7 123.4

ANZ Business

Confidence .. 70.8 67.3 64.8 53.5 42.8 39.7 24.4 13.4 26.5

ANZ Own Activity

Outlook .. 58.5 58.2 52.5 51.0 45.8 45.1 36.6 37.0 37.8

Trade Balance ($m) 285 797 904 467 264 240 -946 -489 -1350 --

Trade Bal ($m ann) 262 627 798 1095 1320 1189 1031 1778 648 --

ANZ World Commodity

Price Index (% mom) 1.2 0.9 -0.1 -3.7 -2.2 -0.9 -2.4 -3.3 -1.3 --

ANZ World Comm.

Price Index (% yoy) 22.6 22.4 14.0 -2.5 -3.1 -0.3 -3.3 -7.2 -9.4 --

Net Migration (sa) 3170 3620 3890 4100 4020 4280 4570 4720 4670 --

Net Migration (ann) 25666 29022 31914 34366 36397 38338 41043 43483 45414 --

ANZ Heavy Traffic

Index (% mom) 0.0 2.2 -1.1 1.1 -1.8 -0.5 2.6 -1.2 1.8 --

ANZ Light Traffic

Index (% mom) 0.4 -0.4 1.2 0.5 0.3 -0.7 -0.7 0.4 0.7 --

Figures in bold are forecasts. mom: Month-on-Month qoq: Quarter-on-Quarter yoy: Year-on-Year


KEY FORECASTS AND RATES

ACTUAL FORECAST (END MONTH)

FX RATES Sep-14 Oct-14 Today Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16

NZD/USD 0.781 0.779 0.777 0.78 0.76 0.75 0.74 0.73 0.73 0.73

NZD/AUD 0.893 0.885 0.888 0.89 0.88 0.87 0.87 0.86 0.87 0.87

NZD/EUR 0.618 0.622 0.621 0.61 0.60 0.58 0.56 0.54 0.54 0.53

NZD/JPY 85.61 87.49 87.60 85.8 83.6 82.5 81.4 80.3 81.8 81.8

NZD/GBP 0.482 0.487 0.487 0.47 0.47 0.46 0.45 0.44 0.43 0.43

NZ$ TWI 76.1 76.3 76.4 75.6 74.2 72.7 71.5 70.1 70.3 70.0

INTEREST RATES Sep-14 Oct-14 Today Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16

NZ OCR 3.50 3.50 3.50 3.50 3.50 3.50 3.50 3.75 4.00 4.00

NZ 90 day bill 3.70 3.70 3.67 3.80 3.80 3.80 3.80 4.20 4.30 4.30

NZ 10-yr bond 4.14 3.99 4.00 4.50 4.70 4.80 4.90 4.90 5.00 5.10

US Fed funds 0.25 0.25 0.25 0.25 0.50 0.75 0.75 1.25 1.25 1.75

US 3-mth 0.24 0.23 0.23 0.50 0.80 1.05 1.30 1.55 1.75 2.00

AU Cash Rate 2.50 2.50 2.50 2.50 2.50 3.00 3.00 3.25 3.25 3.75

AU 3-mth 2.74 2.74 2.74 2.90 3.00 3.20 3.20 3.40 3.40 3.90

Forecasts finalised as at 28 October 2014

30 Sep 27 Oct 28 Oct 29 Oct 30 Oct 31 Oct

Official Cash Rate 3.50 3.50 3.50 3.50 3.50 3.50

90 day bank bill 3.70 3.68 3.69 3.68 3.68 3.69

NZGB 12/17 3.89 3.72 3.70 3.71 3.70 3.69

NZGB 03/19 3.97 3.79 3.77 3.78 3.78 3.77

NZGB 04/23 4.14 4.00 3.99 4.00 4.01 4.00

NZGB 04/27 4.31 4.18 4.16 4.18 4.19 4.18

2 year swap 4.09 3.92 3.90 3.90 3.88 3.87

5 year swap 4.36 4.20 4.18 4.18 4.18 4.16

RBNZ TWI 76.1 76.55 76.75 76.87 76.08 76.38

NZD/USD 0.7817 0.79 0.79 0.79 0.78 0.78

NZD/AUD 0.8917 0.89 0.90 0.89 0.89 0.89

NZD/JPY 85.36 85.06 85.24 85.72 84.98 85.63

NZD/GBP 0.4807 0.49 0.49 0.49 0.49 0.49

NZD/EUR 0.6155 0.62 0.62 0.62 0.62 0.62

AUD/USD 0.8766 0.88 0.88 0.89 0.88 0.88

EUR/USD 1.2700 1.27 1.27 1.27 1.26 1.26

USD/JPY 109.20 107.94 107.83 108.15 109.02 109.39

GBP/USD 1.6263 1.61 1.61 1.61 1.60 1.60

Oil (US$/bbl) 94.53 81.27 81.26 81.36 82.25 81.06

Gold (US$/oz) 1217.70 1230.60 1227.50 1229.90 1213.07 1198.90

Electricity (Haywards) 5.98 6.69 7.75 7.53 7.40 7.30

Baltic Dry Freight Index 1063 1285 1395 1428 1424 1428

Milk futures (USD) 147 145 145 144 143 142


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