new zealand economic s market focus · st rate st ront end is l g interest stil r, but alway a...

23

INS EcoInteCurDatLocKey

NZ

CamChiTeleE-m DavHeaResTeleE-m ShaSenTeleE-m MaSenTeleE-m SteEcoTeleE-m CarStrTeleE-m ConRurTeleE-m SamSenTeleE-m

June 2014

SIDE

onomic Overvieerest Rate Strarrency Strategyta Event Calendcal Data Watch y Forecasts

ECONOMICS T

meron Bagrie ief Economist ephone: +64 4 8

mail: Cameron.Ba

vid Croy ad of Global Masearch, NZ ephone: +64 4 5

mail: David.Croy@

aron Zöllner nior Economistephone: +64 9 3

mail: Sharon.Zoll

rk Smith nior Economistephone: +64 9 3

mail: Mark.Smith

eve Edwards onomist ephone: +64 9 3

mail: Steve.Edwa

rrick Lucas ategist ephone: +64 4 8

mail: Carrick.Luca

n Williams ral Economist ephone: +64 4 8

mail: Con.William

m Tuck nior FX Strategephone: +64 9 3

mail: Sam.Tuck@

w 2 tegy 6

y 8 dar 10 12

13

TEAM

802 2212 [email protected]

arkets

576 1022 @anz.com

t 357 4094 [email protected]

t 357 4096 [email protected]




gist 357 4086

@anz.com

FULLECONOM

Despite atwo-trickmost regfew monexpect thoverall rstrengthlargely bbusinesswhether

INTERE

The NZ freceivingthereafteretained now. Weweek’s Ppare stracheapenstand ou

CURREN

We expedownsidetopside cdriver, athey wernote, lonpost the started tRBA Minstill look

THE ANVariable

GDP

Unemploymrate

OCR

CPI

L HOUSEMIC OVERV

a number of k pony, with gions doing vnths are likelyhis week’s tresidential coening signs e

brushed off ths sentiment w firms conve

EST RATE ST

front end is lg interest stiler, but alway a dovish stae continue to PCE deflator dategic NZGS ing, with stro

ut with relativ

NCY STRATE

ect the NZD/Ue by NZ’s sticapped largend while there 2 weeks ang positioning US Federal Rto price in grutes. This shing prone to

Z HEATMAPView

3.0% yfor 201

Q2

ment 5.4% f2015 Q

4.0% bJun 201

2.1% yfor 201

Q2

NE

E VIEW

f comments t a number ofvery nicely. Ay to show a crade data to onsent issuanevident in thhe impact of will be key, wrt upbeat em

TRATEGY

ikely to remall strong. Weys leaving theance, which wo forecast glodata to confi 10yr shorts.ong demandve monetary

EGY

USD to hold ll-solid grow

ely by “rich” vey are off theago, and this g has been pReserve’s co

reater chancehift will likely squeezing h

P w

y/y 15

Confidstrong

condition

for Q2

Following

by 15

+25bps aa pau

moneta

y/y 15

Benign nto dome

by

W ZEA

to the contraf support factA July OCR hcommodity pshow a wide

nce is on the e non-reside 75bps in OC

with the longmployment an

ain capped ine expect the e door to hikwill see globaobal yields liftrm US inflati. NZGS geog evident at la policy expec

steady in itsth prospectsvaluations. Ne year’s highs characterisapared substaontinued dovies of a cut fo buoy NZD/A

higher.

Comment

dence gauges su momentum, fins still supportiveelevated NZD.

g the economy. Tlower

at the July meetse. Credit channary policy a key

near-term. Upsiestic inflation co high NZD impac

ALANDMA

ry, the NZ ectors underpinike is still moprice impact oning annual cards, but thential sector. CR hikes, fortevity of the end investmen

n a quiet dataRBNZ to hike

kes open. Theal bond yieldsting over theion has baseraphical spreast week’s boctations pote

elevated ran and carry de

NZ’s front-ends, they are station fits snugntially, pavinsh rhetoric. Tllowing last w

AUD in comin

ggest nancial e despite

Trending

ing, then nel of focus.

de risks untered ct.

N

N

N

D ECONARKET

conomy is fanning the exore likely thaon export re trade surpluhis should no With consumthcoming reaexpansion dent intentions

ta week, withe again in Jue US Federals remain ran

e medium tered. We await eads offer vaond tender.

entially matu

nge, supportemand on did interest ratill significantgly with the ng the way foThe Australiaweek’s moreng weeks, wi

Risk

Negative

Ne

egative

Ne

Down

Ne

egative

Ne

NOMICT FOCU

ar from a onepansion, and

an not. The nceipts, but ws. A pullbackot detract fromers having adings for epending on s into reality.

h carry-relately and pausel Reserve nge-bound form, with this better levelsalue after recNZ-AU sprearing.

ted on the ps, and the tes are a keytly higher thaNZD too. Of or fresh buyian market ha

e circumspectth that cross

profile

Posit

eutral

Posit

utral

Up

utral

Posit

utral

CS US

e or d next we k in om

ed e

or s to cent ads

y an ng as t s

tive

ive

ive

ANZ Market Focus / 23 June 2014 / 2 of 16

ECONOMIC OVERVIEW

SUMMARY

Despite a number of comments to the contrary, the NZ economy is far from a one or two-trick pony, with a number of support factors underpinning the expansion, and most regions doing very nicely. A July OCR hike is still more likely than not. The next few months are likely to show a commodity price impact on export receipts, but we expect this week’s trade data to show a widening annual trade surplus. A pullback in overall residential consent issuance is on the cards, but this should not detract from strengthening signs evident in the non-residential sector. With consumers having largely brushed off the impact of 75bps in OCR hikes, forthcoming readings for business sentiment will be key, with the longevity of the expansion depending on whether firms convert upbeat employment and investment intentions into reality.

FORTHCOMING EVENTS

RBNZ Credit Card Billings – June (3pm, Monday, June 23). A 1.0% rise in card spending is expected, consistent with the lift observed in the May ECT data.

SNZ Merchandise Trade – May (Friday, June 27, 10:45am). A trade surplus of just under $200m is expected, with the annual trade surplus lifting to $1.3bn.

SNZ Building Consents – May (Monday, June 30, 10:45am). A 1 to 2% fall in monthly residential consent numbers is expected, given the apartment boost in prior months, with ex-apartment issuance up 5%. Non-residential consent values of around $400m are expected.

ANZ Business Outlook – June (Monday, June 30, 1:00pm).

WHAT’S THE VIEW?

A massive growth contribution from construction has some bleating on about NZ being a two-trick pony (a city rebuild and growing Auckland), or if you add in some cows, three.

Yes, growth in the March quarter was heavily construction-centric, but we all know how volatile NZ stats can be from quarter to quarter so sometimes you need to step back and look at the contributions to annual growth; on this basis the story is far broader. Yes, the contribution of residential investment and other investment (including non-residential construction) has increased versus a year ago, but so too has both public and private consumption, and net exports. On the production side of the ledger, the firming of annual growth momentum was far beyond the construction

sector, with rises in the latter accounting for only around 20% of growth in the March 2014 year (down from 40% in the year to March 2013).

FIGURE 1. PERCENTAGE POINTS CONTRIBUTIONS TO ANNUAL GROWTH IN EXPENDITURE GDP

Source: Statistics NZ, ANZ

FIGURE 2. PERCENTAGE POINT CONTRIBUTION TO PRODUCTION BASED GDP

Source: Statistics NZ, ANZ

Moreover, we notice some recent commentary suggesting the regions are being plundered for the benefit of the cities. Well, that is simply not backed up by the stats; our own Regional Trends proxy for regional economic activity puts Northland at the top of the annual growth stakes in the year to March 2014. In the past 12 months, Northland has recorded strong annual increases in retail trade, house prices, rural real estate sales, dwelling approvals, section sales, commercial consents, online job advertising and regional traffic flows though some of this looks to be bounce out of a deep hole and unemployment is high. Canterbury and Auckland have led economic growth over the past few years. Strong rise have also been recorded by Waikato, Otago, Taranaki and Nelson-Marlborough.

-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Private consumption

Govt consumption

Change in inventories

Residential investment

Other investment

Exports

Imports

2014 Q1 2013 Q1

-1.0 0.0 1.0 2.0 3.0 4.0

Ag

Other Primary

Manufacturing

Construction

Retail, wholesale, transport

Other services

GDP

March 2014 March 2013


ECONOMIC OVERVIEW

FIGURE 3. REGIONAL AVERAGE ECONOMIC GROWTH VERSUS UNEMPLOYMENT RATE

Bubble size indicates relative size of regional economy. Source: Statistics NZ, ANZ

Over the past three years, regional unemployment rates have fallen in half of the fourteen regions we monitor. The largest reduction was noted in Gisborne, a region trapped with a traditionally high level of unemployment.

In this game it also pays to travel and get the full story; that’s what we call knife-and-fork economics (that’s a few dinners chatting along the way). While everyone talks about Christchurch, 100km down the road is a place called Ashburton; it’s booming. That’s irrigation for you. South Canterbury is riding the same wave. Central Otago is going very well with evening flights the icing on Queenstown’s cake. Ironically in Otago, it’s the city (Dunedin) that is underperforming the region. Southland is just Southland and getting on with business and not crowing about it. Blenheim just had a bumper grape harvest; Nelson has a reasonable vibe (was there last Wednesday). Taranaki – white and black gold working in tandem. Bay of Plenty – Psa being worked through (kiwifruit land prices have rebounded), they’re seeing Aucklanders relocate, and the port is going well (though the forestry sector is grinding to a halt, which is something we’re watching). Wellington – no Government spend but lots of IT spend and investment, and Kapiti is doing nicely. Waikato – a two hour wait to get into Fieldays the other Friday told us something. Manawatu – trundling along solidly. There are weak spots, but this talk of cities surging and the regions being down in the dumps is just hubris. In many cases it’s not a lack of demand or opportunities holding regions back, it’s getting the available resources (particularly labour). That’s not a bad problem to have!

In a light week for domestic data, today’s May credit card data is expected to show a modest lift, consistent with the ECT data reported earlier. The

take-out from recent outturns for card spending and in the flat Q1 outturn for private consumption remains that consumers are unwilling to front-run the expansion. Indeed, our estimates show that households are continuing to inject more equity into the housing stock than they are withdrawing from it. This augurs well for the durability of the expansion.

Trade data for May is expected to confirm a widening annual trade surplus. The April trade data showed a seasonally adjusted fall in meat, dairy and forestry volumes, with our expectation being that this will continue. We also expect to see a seasonal rebound in imports, which will deliver a $200m monthly surplus. While up on last May, this will be the lowest monthly surplus since last October. The next few months are expected to show a deterioration in the annual trade position as lower commodity prices feed through into export receipts and the domestic-centric nature of the expansion lifts the demand for imports. The trade position depends crucially on export commodity prices, and we are closely monitoring recent trends. Dairy auction prices have fallen by 26% since early February, though the stabilisation evident in the last auction suggests we may be close to finding a floor. Forestry prices have receded, with our internal anecdotes pointing to a moderation in Chinese demand. The general expectation is that prices will find a floor over the next month or two, but a nervous wait lies ahead. Other commodity export prices need to be closely watched given New Zealand’s dependence on China; we’re detecting further cracks in that economic story and it has us very very watchful for it’s the potential spoiler on New Zealand’s economic party. Watch this space.

FIGURE 4. EXPORT VALUES AND COMMODITY PRICES

Source: ANZ, Statistics NZ

While a lull in residential consent numbers is expected, this follows a strong few months, and we expect ex-apartment numbers to firm. Typically consent issuance tends to follow the broader

Northland

AucklandWaikato

Bay of Plenty

Gisb-orne

Hawke's Bay

Taranaki

Manaw-Whang

Wgtn

Nelson-Marlborough

West CoastCanterbury

OtagoSouthland

3

4

5

6

7

8

9

10

1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

Avg

unem

plo

yment

rate

pas

t 3 y

rs (

%)

Average Economic growth over past 3 years (%)

100

125

150

175

200

225

250

4

5

6

7

8

9

10

11

12

13

14

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

Index

$bn

Exports (3mth ave, LHS) NZD Commodity Prices (RHS)


ECONOMIC OVERVIEW

housing market, but that is not the case this time around. While pessimists point to the post-LVR slump in housing market activity as a precursor to a pronounced slowdown in the NZ economy, we beg to differ. Our internal anecdotes have confirmed housing developments in Auckland are progressing well, consistent with our forecasts for annual residential consent issuance numbers approaching 25,000 in 2014, the highest calendar year total since 2007. The strengthening non-residential construction sector is often overlooked, but with the floor area of consents up by close to 25% over the past three months, things are definitely moving here as well.

FIGURE 5. RESIDENTIAL CONSENTS AND HOUSE SALES

Source: ANZ, REINZ, Statistics NZ

Confirmation of a strengthening impulse from net immigration was confirmed in the May data released today, with the net annual PLT inflow rising to 36,397 persons, and the economy on track for a 45,000 person inflow by the end of the year. PLT departures, whilst up in May were around 15% lower than a year ago. Arrivals also rose in May and were 18% higher than a year ago. Both are a reflection of the relative strength of the NZ economy. The issue for the RBNZ will be the net impact of the increased net immigration flows on capacity pressures within the economy, with a more geographically dispersed population leaving versus an Auckland-centricity to arrivals.

Net migration with Australia is looking like it may turn into a net positive for the first time since the early 1990s. But before we start pitying our Australian cousins (heaven forbid), the fact is, net immigration is still adding proportionately more to the Australian population than it is to ours – it is just that the gap is closing. The 2.6% annual increase in our real per-capita GDP is almost a full percentage point higher than in Australia. That’s great news but a material level gap remains.

Business sentiment will provide an updated stocktake of the business mood (though not released till next Monday). One of the take-outs has been the broad-based nature of the upturn in business sentiment, reflective of the widespread number of demand-side supports. Last week’s ANZ Roy Morgan measure of consumer confidence suggests that consumers have taken the 75bp lift in the OCR in their stride, with confidence about where it was in February. Confidence levels are higher in Wellington and the South Island than they are in Auckland, suggesting it not a housing-centric buzz that is propping up consumer sentiment. Admittedly, the flow-through from the OCR to mortgage interest rates has been blunted somewhat by lower 2 and 3 year fixed mortgage rates, and we will continue to closely monitor changes in borrowing behaviour for signs that moves in the OCR are starting to lose their potency.

FIGURE 6. ANZ BUSINESS OUTLOOK COMPOSITES (May)

Source: ANZ

Offshore the focus is on the Chinese economy, with today’s HSBC manufacturing PMI expected to lift from the 49.4 May reading, consistent with a soft landing for the Chinese economy – although the risk profile is pointed downwards. Pricing data for the US economy is expected to show a lift in PCE deflator inflation, consistent with last week’s higher-than-expected CPI inflation data. Our view is that inflation will lift only gradually from here, with the Fed likely to keep the foot firmly on the gas pedal, and with the carry trade likely to underpin the NZD. A downward revision to US Q1 GDP is likely, but the likelihood is that the economy recovered strongly in Q2, with momentum likely to be sustained over the course of the year.

RECENT LOCAL DATA

GlobalDairyTrade auction. The average winning price rose 0.9% to USD3,807 per MT. Whole milk powder prices rose 2.4% (USD3,658 / MT).

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

500

1000

1500

2000

2500

3000

3500

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

House S

ales (sa)C

onse

nts

(sa

)

Consents (LHS) House sales (sa, adv 4 mths, RHS)

0 10 20 30 40 50

Agriculture

Manufacturing

Construction

Retail

Services

Total

Historical Averages Current Index


ECONOMIC OVERVIEW

SNZ Balance of Payments – Q1. There was a quarterly surplus of 1,407m, with the annual deficit narrowing to 6,333m (2.8% of GDP).

SNZ Gross Domestic Product – Q1. Real production GDP rose 1.0% q/q (3.8% y/y). Expenditure-based GDP rose 1.3% q/q (3.1% y/y).

ANZ Job Ads – May. Total job ads fell 8.2% m/m (sa). Internet ads fell 5.6% m/m; newspaper ads fell 2.0% m/m.

ANZ Roy Morgan Consumer Confidence – June. Confidence rose 4 points to 132. All components remain well north of the 100 benchmark.

SNZ International Travel and Migration – May. There was a net PLT inflow of 3,980 persons, with the annual net PLT inflow rising to 36,397 persons. Visitor arrivals rose 0.3% sa (+5.4% y/y).


INTEREST RATE STRATEGY

SUMMARY

The NZ front end is likely to remain capped in a quiet data week, with carry-related receiving interest still strong. We expect the RBNZ to hike again in July and pause thereafter, but always leaving the door to hikes open. The US Federal Reserve retained a dovish stance, which will see global bond yields remain range-bound for now. We continue to forecast global yields lifting over the medium term, with this week’s PCE deflator data to confirm US inflation has based. We await better levels to pare strategic NZGS 10yr shorts. NZGS geographical spreads offer value after recent cheapening, with strong demand evident at last week’s bond tender. NZ-AU spreads stand out with relative monetary policy expectations potentially maturing.

THEMES

We expect the RBNZ to hike in July with growth momentum not yet slowing enough to warrant a pause. That point is coming; a high NZD and CPI data provide stumbling blocks in the near term.

Global bond yields look set to remain range-bound as the FOMC maintains its dovish rhetoric. A consolidation in June flash PMIs supports this view, though the US PCE deflator will show inflation lifting towards the Fed’s 2% objective.

PREFERRED STRATEGIES – INVESTORS

KEY VIEWS – FOR INVESTORS

GAUGE DIRECTION COMMENT

Duration Neutral /

Strat. Short USTs range-bound for now, biased higher long term.

2s10s Curve Neutral / Steeper

Wade into steepeners below 70bps.

NZ-US 10yr spread Tighter

Re-instigate NZGS geographical compression trades.

Swap spreads

Neutral / Wider

Mid-range. Biased higher as offshore NZGS demand return.

We expect NZ front-end yields to remain capped in the short term amid solid carry-related receiving interest from offshore. A light domestic data flow in coming weeks also supports a consolidation view. The 2yr swap rate continues to be met with strong receiving interest above 4.20%, with receivers benefiting from roll and carry of 5bps per month. To put this in context, the NZ 2yr swap rate now offers a 130bp pick-up versus Australia rates (+1.7bps R+C) and 350bps to the US (4bps R+C). Demand for carry is likely to remain a key driver of rates markets ahead of the Northern Hemisphere summer, with the ECB, US Federal Reserve and RBA all conveying dovish tones. On the flipside, constant mortgage flow is likely to limit the downside for the 2yr swap rate to 4.05-4.10%. In the meantime, we’re happy to take the carry.

A dovish Fed is expected to keep US 10yr bond yields range-bound between 2.50-2.75% in coming months. Elevated geopolitical tensions (Iraq, Ukraine) provide downside risks, while further upside surprises to US inflation and activity data provide upside risks to yields. We continue to forecast US 10yr yields rising above 3% by year end as the US economy improves and the Fed concludes tapering. Thus, we favour retaining strategic NZGS 10yr shorts for now, though would target 4.55% to re-enter tactical longs. Demand for NZGS was strong at last week’s tender following recent bond cheapening. NZGS Apr-2023s could cheapen towards this level in the short term, with NZDMO expected to announce details of its NZGS Apr-2027 syndication this week alongside its September quarter tender schedule (we estimate around a 20bpt pick-up to Apr-2023s).

We continue to see good medium-term value in NZGS geographical spreads with expectations of the RBNZ tightening cycle maturing, and favour wading into NZ-AU 2023s compression trades at 85-90bps (near-cycle highs). We would however caution of the possibility the market moves to price in RBA cuts, though to be sure we don’t expect further cuts.

FIGURE 1. NZ-AU INTEREST RATE DIFFERENTIALS

Source: ANZ, Bloomberg

Swap spreads are likely to remain range-bound in the short term as offshore demand for NZD credit product (including Kauri’s) offsets NZGS demand, though we favour gradual swap spread widening against a backdrop of limited regular NZGS supply.

PREFERRED STRATEGIES – BORROWERS

A relatively flat yield curve favours blending-and-extending the duration of current hedges. We see limited value in hedging for shorter terms of 2-3 years with monetary policy expectations now relatively mature and yields likely to be capped by offshore receiving interest. In contrast, term swap rates remain well below historical averages, with higher US activity

-100

-75

-50

-25

0

25

50

75

100

-250

-200

-150

-100

-50

0

50

100

150

200

250

04 05 06 07 08 09 10 11 12 13 14

bps

bps

4th Bill Futures Spreads (LHS)

NZGS-ACGB 10yr Bond Spd (RHS)


INTEREST RATE STRATEGY

and inflation data pointing to a gradual lift in US bond yields over time. In the short term, 5-10yr swap rates are expected to remain range-bound and we continue to favour a strategy of adding to hedge cover on dips (targeting sub-4.5% for the 5 year and sub-4.6% for the 7 year). Be opportunistic: use any further flattening in the yield curve to blend-and-extend the term of current hedges (by embedding the profit into longer duration hedges at below-market rates). As an example, the cost of extending 3yr hedge cover for another four years has fallen to 35bps (a 5-year low).

KEY VIEWS – FOR BORROWERS

GAUGE VIEW COMMENT

Hedge ratio Majority hedged

Blend and extend cover in light of flat yield curve.

Value Long-end

cheap Still value in hedging for terms of 5-10yrs.

Uncertainty Elevated Geopolitical. Elevated NZD. July RBNZ OCR Review.

Financial market volatility remains low courtesy of accommodative global central bank settings, and thus options provide an alternative tool for protecting against an unanticipated rise in yields.

GLOBAL SCENE

The Yellen-led Fed stuck with its dovish rhetoric at last week’s FOMC meeting, which will help keep US bond yields anchored for some time yet. Fed Chair Janet Yellen reiterated that spare capacity remains sizeable and real wage growth low, with any hike in the Fed Funds Rate (FFR) to arrive “a considerable time after the asset purchase program ends”. Median member forecasts for the FFR are slightly above current market expectations, although remain “contingent on the economic outlook”.

FIGURE 2. FED FUNDS RATE EXPECTATIONS

Source: ANZ Research, Bloomberg

The Fed also lowered its long-run central tendency on the FFR to 3.75%, which is now in line with the US 5yr/5yr swap rate. In effect, the Fed has put the onus back on the data to outperform its own

economic outlook. US unemployment has fallen significantly in recent years (from 10% to 6.3%), while inflation has fallen short of the Fed’s 2% objective. In that respect, the US PCE deflator (the Fed’s preferred inflation measure) is this week expected to rise to 1.8% y/y in May, testing the Fed’s resolve. This would be the highest level in 18 months and above the Fed’s year-end projection of 1.5-1.7%. While Yellen viewed recent inflation data to be “noisy”, it does seem clear that US inflation has now based, and this represents a clear threat for bond investors. This week’s Fed speakers may provide additional insights. In other data, US Q1 GDP is expected to be revised down from -1.0% to -1.8% q/q (annualised), although is projected to bounce back to +3.5% in Q2. We continue to forecast US bond yields to normalise gradually over the medium term (though now expect US 10yr yields to peak at 3.5-4.0% in late 2015 before settling at 3.25% in 2016); we’re pencilling in hikes in the FFR from mid-2015.

Global flash PMIs are expected to consolidate in June, with the US Markit PMI to remain in expansionary territory (at around 56); China’s HSBC PMI to lift to six-month highs of 49.7; and the Eurozone flash PMI to hold at around 52.2. Downside risks in Australia will keep the RBA on the sidelines for some time, with iron ore prices slumping 25% in recent months while the outlook for consumer spending has also turned down.

DOMESTIC SCENE AND MARKET EXPECTATIONS

Growth momentum has slowed, but not nearly enough for the RBNZ to pause just yet. That point is coming, but we believe the RBNZ needs a reason not to hike in July, with the credit channel muting the impact of earlier rate hikes. Despite 75bps of OCR hikes since March, 2-3 year fixed mortgage rates are still below levels prevailing at the start of the year. Stronger net migration (tracking at an annualised rate of 43,000 over the past 6 months) also risks the housing market getting a second wind. Still, we would assign odds of only 60/40 to a July rate hike (below current market pricing of 80%), with a high NZD (currently 1.6% above RBNZ Q3 projections) and Q2 inflation data (due 16 July) providing potential stumbling blocks. CPI inflation is also expected to remain anchored at around 1.5% y/y in H2 given the impact of recent currency strength on tradables inflation, which could limit the extent of tightening. Against a benign global backdrop, the NZD is likely to remain elevated and thus we expect the RBNZ to then pause until early 2015. The market is currently pricing an OCR of 3.70% by the end of 2014, and 4.20% by the end of 2015 (35bps below implied RBNZ projections and our own forecast track).

0.0

0.5

1.0

1.5

2.0

2.5

Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16

%

FOMC median projections


CURRENCY STRATEGY

SUMMARY

We expect the NZD/USD to hold steady in its elevated range, supported on the downside by NZ’s still-solid growth prospects and carry demand on dips, and the topside capped largely by “rich” valuations. NZ’s front-end interest rates are a key driver, and while they are off the year’s highs, they are still significantly higher than they were 2 weeks ago, and this characterisation fits snugly with the NZD too. Of note, long positioning has been pared substantially, paving the way for fresh buying post the US Federal Reserve’s continued dovish rhetoric. The Australian market has started to price in greater chances of a cut following last week’s more circumspect RBA Minutes. This shift will likely buoy NZD/AUD in coming weeks, with that cross still looking prone to squeezing higher.

TABLE 1: KEY VIEWS

CROSS WEEK MONTH YEAR

NZD/USD ↔/↑ Still driven by NZ’s high rates.

High in place, but decline gradual.

NZD/AUD ↔/↑ Technical bounce Range trade.

NZD/EUR ↔/↑ EUR high yield spreads falling.

EUR to gain on better confidence.

NZD/GBP ↔/↓ Carney bullish. GBP resurgence.

NZD/JPY ↔ Awaiting Abe’s further “arrows”

Yen weakness.

Elevated but expensive, but that’s still tenable given the rewards (carry) one gets for being long. Positioning is the most neutral it’s been in 9 months, leaving the market “freer” to trade fundamentals (still decent) and flows (still dominated by buying).

THEMES AND RISKS

The NZD is back at 0.87 and a July hike is now around 80% priced in. While this suggests the rally is mature, and we are seeing front-end interest rates consolidate, NZD is too expensive to short.

We’re mindful that the Kiwi’s performance depends crucially on the USD too – the risk being that the market has become too complacent on the Fed.

The growing divergence in relative policy biases is likely to continue to support the NZD/AUD cross.

TABLE 2: KEY UPCOMING EVENT RISK EVENT WHEN (NZT) LIKELY IMPACT

NZD: Card Spending Mon: 15:00 NZD/USD ↑

EUR: Markit PMI Mon: 20:00 NZD/EUR ↓↑

USD: Markit PMI Tue: 01:45 NZD/USD ↓↑

AUD: Cons Confidence Tue: 11:30 N/A

DEM: IFO Survey Tue: 20:00 NZD/EUR ↓

USD: House Prices Wed: 01:00 NZD/USD ↓

USD: Cons Confidence Wed: 02:00 NZD/USD ↓↑

USD: Home Sales Wed: 02:00 NZD/USD ↓

USD: Core PCE Deflator Fri: 00:30 NZD/USD ↓

NZD: Trade Balance Fri 10:45 NZD/USD ↑

GBP: Current Account Fri 20:30 NZD/GBP ↓

EXPORTERS’ STRATEGY

The NZD is not doing exporters any favours at the moment, and we don’t expect this situation to change any time soon. Low volatility aggravates the problem by reducing spikes and dips. But the flip side is that low volatility makes options cheaper, and we reiterate the question we posed last week: what if NZD breaks higher? With the TWI back at record levels and value at an extreme, options make sense.

IMPORTERS’ STRATEGY

Time remains on your side if you’re an importer. Patience is thus the name of the game.

DATA PULSE

Last week’s run of NZ data reinforce the theme that the economic tempo of the nation is mature and topping out, with job ads lower and GDP a touch shy of expectations. But we also hark back to the central theme of a few weeks ago – namely the idea that the reality is that we are talking about “degrees of excellence”. NZ has challengers on the relative growth front, but they are few and distant, with the UK the main contender. Accordingly, this is one of the few crosses where we expect the NZD to decline. Of course, against everyone (including the UK), the big difference is NZ has embarked on the tightening cycle, so our interest rates are higher now (rather than “may be higher later”). In a world dominated by low interest rates punctuated with low volatility NZ is still an attractive place to park cash. None of this is new though – hence our comfort with the elevated range-trade thematic. However, we will be keeping an eye on Australian interest rates. If the AUD market starts pricing in greater odds of RBA cuts, that will give NZD/AUD more legs.

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

Fair value ↔ Close to fair value. Yield ↔/↑ Moving more in NZ’s favour. Commodities ↔ NZD advantage in the price. Data ↔↑ NZ base momentum still better. Techs ↑ Range trade. Sentiment ↔ Back in middle of range. Other ↔/↑ Watch RBA expectations. On balance ↔↑ Likely to remain well bid.

TABLE 4: NZD VS USD: MONTHLY GAUGES GAUGE GUIDE COMMENT

Fair value ↔/↓ Still rich. TWI at record levels. Yield ↔/↑ Yield advantage not going away. Commodities ↔ Dairy prices stabilising. Risk aversion ↔/↑ Low volatility good for carry/risk. Data ↔/↓ US market too complacent? Techs ↔ Neutral, range trading patterns. Other ↔/↓ Front-end rates consolidating. On balance ↔ Elevated range trade.


CURRENCY STRATEGY

TECHNICALS

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

The technical picture has not changed significantly since the RBNZ-inspired rejection of the negative picture prevailing 2 weeks ago. We still have little to go on technically, or on the data front, underlining our range trade between 0.8520 and 0.8750. Key support lies at 0.8650, the 200-day moving average.

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

No significant changes in the NZD/AUD picture either, but we do note the market has failed to sustain the break through 0.9300 last week. That said, the late May break lower proved to be erroneous, and we are back inside the 6 month channel. Having traded in a tight range around the 200-day moving average the bounce suggests we are set to be range-bound for a while longer. Support comes in at 0.9170, with resistance at 0.9300 and 0.9400.

TABLE 5: KEY TECHNICAL ZONES CROSS SUPPORT RESISTANCE

NZD/USD 0.8595 – 0.8660 0.8410 – 0.8490

0.8740 0.8780

NZD/AUD 0.9235

0.9050 – 0.8950 0.9300 0.9400

NZD/EUR 0.6350 0.6500

NZD/GBP 0.5110 – 0.5160 0.5190 – 0.5240

NZD/JPY 88.15 – 88.35 89.05 – 89.90

POSITIONING

NZD long positioning has been cut dramatically, taking it back to levels not seen since last September. We’ll never know whether this was sensible and well-timed profit-taking or squaring up of what had been excessively long net carry positioning ahead of the Fed. However, positioning is now “cleaner”, and with overall carry positioning (AUD+NZD versus JPY+CHF) also much less long, any re-establishment of carry trades ought to support NZD. AUD positioning is still long (although less so). This also adds weight to our bias for NZD/AUD higher.

GLOBAL VIEWS

A complacent attitude towards the US Federal Reserve may land the market in trouble before long, with a host of housing data releases and the core PCE deflator all due out this week, and US inflation generally trending higher. We were surprised at how willing the market was to shrug off the Fed’s higher near-term rate projections. Bond yields aren’t likely to shoot higher, but we’re mindful of misaligned Fed and market projections at the moment given the role the soft USD is playing in propping up the Kiwi.

FORWARDS: CARRY AND BASIS.

FIGURE 3: NZD/USD SHORT BASIS CURVE

Short basis spreads have rebounded a touch, adding to the relative attraction of very short-dated hedging.

FIGURE 4: RELATIVE ATTRACTION OF THE FWD CURVE

Source: ANZ, Bloomberg, Reuters

02468

101214161820

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

Basis

Months

Current

Last week

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

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

Months

CurrentLast week

Relative value


DATA EVENT CALENDAR

DATE COUNTRY DATA/EVENT MKT. LAST NZ TIME

23-Jun NZ Net Migration SA - May -- 3980(a) 10:45

JN Markit/JMMA Japan Manufacturing PMI - Jun P -- 49.9 13:35

CH HSBC China Manufacturing PMI - Jun P 49.7 49.4 13:45

NZ Credit Card Spending MoM - May -- -3.2% 15:00

NZ Credit Card Spending YoY - May -- 3.2% 15:00

GE Markit/BME Germany Manufacturing PMI - Jun P 52.5 52.3 19:30

GE Markit Germany Services PMI - Jun P 55.8 56.0 19:30

GE Markit/BME Germany Composite PMI - Jun P 55.5 55.6 19:30

EC Markit Eurozone Manufacturing PMI - Jun P 52.2 52.2 20:00

EC Markit Eurozone Services PMI - Jun P 53.3 53.2 20:00

EC Markit Eurozone Composite PMI - Jun P 53.4 53.5 20:00

UK Nationwide House PX MoM - Jun 0.5% 0.7% 23-28 Jun

UK Nationwide House Px NSA YoY - Jun 11.2% 11.1% 23-28 Jun

24-Jun US Chicago Fed Nat Activity Index - May 0.20 -0.32 00:30

US Markit US Manufacturing PMI - Jun P 56.0 56.4 01:45

US Existing Home Sales - May 4.74M 4.65M 02:00

US Existing Home Sales MoM - May 1.9% 1.3% 02:00

AU ANZ RM Consumer Confidence Index - 22-Jun -- 103.2 11:30

GE IFO Business Climate - Jun 110.3 110.4 20:00

GE IFO Current Assessment - Jun 115.0 114.8 20:00

GE IFO Expectations - Jun 106.0 106.2 20:00

UK BBA Loans for House Purchase - May 41000 42173 20:30

25-Jun US FHFA House Price Index MoM - Apr 0.5% 0.7% 01:00

US S&P/CS 20 City MoM SA - Apr 0.80% 1.24% 01:00

US S&P/CS Composite-20 YoY - Apr 11.50% 12.37% 01:00

US Consumer Confidence Index - Jun 83.5 83.0 02:00

US Richmond Fed Manufact. Index - Jun 6 7 02:00

US New Home Sales - May 440K 433K 02:00

US New Home Sales MoM - May 1.6% 6.4% 02:00

AU Skilled Vacancies MoM - May -- -0.2% 13:00

CH Westpac-MNI Consumer Sentiment - Jun -- 121.2 13:45

GE GfK Consumer Confidence - Jul 8.6 8.5 18:00

UK CBI Reported Sales - Jun 23 16 22:00

US MBA Mortgage Applications - 20-Jun -- -9.20% 23:00

26-Jun US Durable Goods Orders - May -0.2% 0.6% 00:30

US GDP Annualized QoQ - 1Q T -1.8% -1.0% 00:30

US Durables Ex Transportation - May 0.3% 0.3% 00:30

US Personal Consumption - 1Q T 2.5% 3.1% 00:30

US Cap Goods Orders Nondef Ex Air - May 0.5% -1.2% 00:30

US GDP Price Index - 1Q T 1.3% 1.3% 00:30

US Cap Goods Ship Nondef Ex Air - May 1.0% -0.4% 00:30

US Core PCE QoQ - 1Q T 1.2% 1.2% 00:30

US Markit US Composite PMI - Jun P -- 58.4 01:45

US Markit US Services PMI - Jun P 58.0 58.1 01:45

AU Job vacancies - May -- 2.6% 13:30

27-Jun US Initial Jobless Claims - 21-Jun 311K 312K 00:30

US Continuing Claims - 14-Jun 2570K 2561K 00:30

US Personal Income - May 0.4% 0.3% 00:30

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

27-Jun US Personal Spending - May 0.4% -0.1% 00:30

US PCE Deflator MoM - May 0.3% 0.2% 00:30

US PCE Deflator YoY - May 1.8% 1.6% 00:30

US PCE Core MoM - May 0.2% 0.2% 00:30

US PCE Core YoY - May 1.5% 1.4% 00:30

US Kansas City Fed Manf. Activity - Jun 11 10 03:00

NZ Trade Balance - May 250M 534M 10:45

NZ Exports - May 4.50B 4.50B 10:45

NZ Imports - May 4.23B 3.96B 10:45

NZ Trade Balance 12 Mth YTD - May 1350M 1191M 10:45

UK Hometrack Housing Survey MoM - Jun -- 0.5% 11:01

UK Hometrack Housing Survey YoY - Jun -- 6.1% 11:01

UK GfK Consumer Confidence - Jun 2 0 11:05

JN Natl CPI YoY - May 3.7% 3.4% 11:30

JN Natl CPI Ex Fresh Food YoY - May 3.4% 3.2% 11:30

JN Natl CPI Ex Food, Energy YoY - May 2.2% 2.3% 11:30

JN Tokyo CPI YoY - Jun 3.1% 3.1% 11:30

JN Tokyo CPI Ex-Fresh Food YoY - Jun 2.8% 2.8% 11:30

JN Tokyo CPI Ex Food, Energy YoY - Jun 1.9% 1.9% 11:30

JN Retail Trade YoY - May -1.9% -4.3% 11:50

JN Retail Sales MoM - May 2.8% -13.6% 11:50

JN Large Retailers' Sales - May -2.5% -6.7% 11:50

CH Industrial Profits YTD YoY - May -- 10.0% 13:30

CH Industrial Profits YoY - May -- 9.6% 13:30

GE Import Price Index MoM - May 0.0% -0.3% 18:00

GE Import Price Index YoY - May -2.2% -2.4% 18:00

UK GDP QoQ - 1Q F 0.8% 0.8% 20:30

UK GDP YoY - 1Q F 3.1% 3.1% 20:30

UK Current Account Balance - 1Q -£17.3B -£22.4B 20:30

UK Index of Services MoM - Apr 0.3% 0.4% 20:30

UK Index of Services 3M/3M - Apr 0.9% 0.9% 20:30

UK Total Business Investment QoQ - 1Q F 2.7% 2.7% 20:30

UK Total Business Investment YoY - 1Q F 8.7% 8.7% 20:30

EC Economic Confidence - Jun 103.0 102.7 21:00

EC Industrial Confidence - Jun -3 -3 21:00

EC Consumer Confidence - Jun F -- -7.4 21:00

EC Services Confidence - Jun 4.0 3.8 21:00

EC Business Climate Indicator - Jun 0.40 0.37 21:00

28-Jun GE CPI MoM - Jun P 0.2% -0.1% 00:00

GE CPI YoY - Jun P 1.0% 0.9% 00:00

GE CPI EU Harmonized MoM - Jun P 0.2% -0.3% 00:00

GE CPI EU Harmonized YoY - Jun P 0.7% 0.6% 00:00

US Univ. of Michigan Confidence - Jun F 82.0 81.2 01:55

CH Leading Index - May -- 100.11 28-30 Jun


LOCAL DATA WATCH

Last week’s data, whilst historical, confirmed a strong starting point for economic activity and the nation’s external position. A climbing annual trade surplus but falls in residential consent issuance is expected to characterise a mixed month for activity data, with next Monday’s ANZ Business Outlook to provide a forward-looking steer on the pace of activity in the second half of the year. With the RBNZ in data-watch mode, forthcoming inflation data is not expected to provide an obstacle to the RBNZ hiking again in July, but we note the speed and magnitude of further moves remain conditional on local and global developments.

DATE DATA/EVENT ECONOMIC SIGNAL COMMENT

Mon 23 Jun (3:00pm)

RBNZ Credit Card billings – May

Rebound A 1.0% rise in card spending is expected, consistent with the lift observed in the May ECT data.

Fri 27 Jun (10:45am)

Merchandise Trade – May

Still in the black A trade surplus of $200m is expected, with the annual trade surplus lifting to $1.3bn.

Mon 30 Jun (10:45am)

Building Consents – May

Trending up Falls in overall residential consent issuance are expected given apartment boost in prior months. Non-residential firming.

Mon 30 Jun (1:00pm)

ANZ Business Outlook – Jun

- - - -

Mon 30 Jun (3:00pm)

RBNZ Credit Aggregates – May

Low Credit growth to remain below nominal GDP. Annual housing credit to moderate further.

Wed 1 Jul (early am)

GlobalDairyTrade auction

Holding Prices are likely to stabilise around the USD3,800/MT level. Solid demand should see prices settle at high levels.

Wed 2 Jul (1:00pm)

ANZ Commodity Price Index – Jun

- - - -

Tue 8 Jul (10:00am)

NZIER QSBO – Q2 Capacity watch Likely to see moderation in activity metrics from high levels. Capacity measures to flag a pending lift in core inflation.

Tue 8 Jul (10:00am)

Crown Financial Statements – May

Closing This is expected to closely track Budget 2014 estimates. We will be watching tax revenues as barometer of activity.

Wed 9 Jul (10:45am)

Electronic Card Transactions – June

Moderate A 0.4% rise in ECT spending is expected, with consumption spending growth in line with incomes.

Thur 10 Jul (10:00am)

ANZ Truckometer – June

- - - -

Thur 10 Jul (10:30am)

BNZ Business NZ – PMI – June

Mid 50s Strengthening construction sector to support domestic manufacturing, with the high NZD a headwind.

Fri 11 Jul (10:45am)

Food Price Index – June

Down A small fall is expected.

14-17 Jul REINZ housing market data – Jun

Off the boil Mild lift in sales volumes expected, with annual house price inflation to cool from 6.4% May rate.

Mon 14 Jul (10:30am)

BNZ Business NZ – PSI – June

Low 50s Housing activity headwinds to remain.

Wed 16 Jul (early am)

GlobalDairyTrade auction

Holding Prices are likely to stabilise around the USD3,800/MT level. Solid demand should see prices settle at high levels.

Wed 16 Jul

(10:45am) CPI – Q2 Contained A 0.3% rise expected (1.7% y/y). A 0.6% rise in non-tradable

prices with tradable prices (-0.1% q/q) the wild card. Thur 17 Jul

(10:00am) ANZ Job Ads – June - - - -

Thur 17 Jul

(1:00pm)

ANZ Roy Morgan Consumer Confidence – July

- - - -

On Balance Above trend Increasing capacity pressures to flow through into inflation, with 100bps of OCR hikes over 2014.


KEY FORECASTS AND RATES

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

GDP (% qoq) 1.0 0.8 0.8 0.7 0.7 0.7 0.6 0.6 0.6 0.6

GDP (% yoy) 3.8 4.1 3.7 3.4 3.1 3.0 2.9 2.8 2.6 2.5

CPI (% qoq) 0.3 0.3 0.7 0.2 0.6 0.6 0.8 0.3 0.7 0.7

CPI (% yoy) 1.5 1.7 1.4 1.6 1.8 2.1 2.2 2.3 2.4 2.5

Employment (% qoq) 0.9 0.5 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3

Employment (% yoy) 3.7 3.8 2.9 2.3 1.7 1.5 1.3 1.2 1.1 1.1

Unemployment Rate (% sa) 6.0 5.7 5.6 5.5 5.4 5.4 5.3 5.3 5.3 5.3

Current Account (% GDP) -2.8 -2.7 -2.4 -3.0 -3.5 -4.0 -4.4 -4.6 -4.8 -4.9

Terms of Trade (% qoq) 1.8 -2.5 -3.0 -2.2 -2.1 -1.7 -1.4 -1.1 -0.9 -0.7

Terms of Trade (% yoy) 17.3 9.4 -1.3 -5.8 -9.5 -8.8 -7.3 -6.3 -5.1 -4.1

Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14

Retail ECT (% mom) -1.1 1.8 0.7 0.6 -0.4 0.8 0.0 0.4 1.3 --

Retail ECT (% yoy) 3.5 7.0 6.7 5.5 6.1 5.7 5.1 5.7 7.6 --

Credit Card Billings (% mom)

-0.4 -1.4 4.6 -0.6 1.2 0.4 1.2 -3.1 -- --

Credit Card Billings (% yoy)

3.9 2.1 6.9 5.0 9.0 5.9 7.5 3.2 -- --

Car Registrations (% mom)

-7.7 7.2 2.7 -1.2 2.6 4.1 3.3 -0.4 3.4 --

Car Registrations (% yoy)

15.8 16.2 23.0 20.3 20.2 23.6 26.8 17.5 21.7 --

Building Consents (% mom)

1.8 0.8 11.7 6.8 -8.7 -1.5 9.1 1.5 -- --

Building Consents (% yoy)

15.1 18.2 40.6 39.2 23.7 15.4 36.6 20.8 -- --

REINZ House Price Index (% yoy)

9.8 9.9 9.6 9.2 7.7 8.2 9.2 8.5 6.5 --

Household Lending Growth (% mom)

0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.3 -- --

Household Lending Growth (% yoy)

5.6 5.7 5.6 5.7 5.7 5.7 5.6 5.4 -- --

ANZ Roy Morgan Consumer Conf.

118.8 122.3 128.4 129.4 135.8 133.0 132.0 133.5 127.6 131.9

ANZ Business Confidence

54.1 53.2 60.5 64.1 .. 70.8 67.3 64.8 53.5 --

ANZ Own Activity Outlook

45.3 47.1 47.1 53.5 .. 58.5 58.2 52.5 51.0 --

Trade Balance ($m) -221 -169 153 492 285 795 935 534 -- --

Trade Bal ($m ann) -1559 -1014 -274 -317 262 625 827 1191 -- --

ANZ World Commodity Price Index (% mom)

1.1 1.3 -0.3 1.0 1.2 0.9 -0.1 -3.7 -2.2 --

ANZ World Comm Price Index (% yoy)

22.9 22.8 21.3 21.5 22.6 22.4 14.0 -2.5 -3.1 --

Net Migration (sa) 2750 2950 2730 2930 3150 3560 3890 4080 3980 --

Net Migration (ann) 15174 17490 19478 22468 25666 29022 31914 34366 36397 --

ANZ Heavy Traffic Index (% mom)

-0.1 0.4 -2.0 2.2 0.0 2.3 -1.0 1.2 -2.1 --

ANZ Light Traffic Index (% mom)

-0.6 -0.6 -0.6 -0.6 -0.6 -0.6 1.2 0.4 0.2 --

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 Apr-14 May-14 Today Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15

NZD/USD 0.862 0.850 0.870 0.83 0.83 0.81 0.79 0.78 0.77 0.76

NZD/AUD 0.928 0.913 0.927 0.92 0.94 0.95 0.94 0.93 0.92 0.90

NZD/EUR 0.621 0.623 0.640 0.60 0.59 0.57 0.56 0.55 0.53 0.51

NZD/JPY 88.10 86.49 88.84 87.2 88.8 89.1 86.9 85.8 84.7 83.6

NZD/GBP 0.511 0.507 0.511 0.49 0.48 0.47 0.45 0.45 0.44 0.43

NZ$ TWI 79.8 79.0 81.0 77.7 77.9 76.6 74.8 73.7 72.5 71.1

INTEREST RATES Apr-14 May-14 Today Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15

NZ OCR 3.00 3.00 3.25 3.25 3.50 3.50 3.75 4.00 4.25 4.50

NZ 90 day bill 3.33 3.42 3.57 3.70 3.80 3.80 4.20 4.30 4.70 4.80

NZ 10-yr bond 4.41 4.24 4.43 4.50 4.70 4.80 5.10 5.20 5.30 5.40

US Fed funds 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.50 0.75 1.00

US 3-mth 0.22 0.23 0.23 0.30 0.40 0.50 0.60 0.80 1.10 1.40

AU Cash Rate 2.50 2.50 2.50 2.50 2.50 2.50 2.75 3.00 3.25 3.50

AU 3-mth 2.68 2.71 2.70 2.70 2.70 2.70 2.90 3.20 3.40 3.70

Forecasts finalised as at June 13, 2014

20 May 16 Jun 17 Jun 18 Jun 19 Jun 20 Jun

Official Cash Rate 3.00 3.25 3.25 3.25 3.25 3.25

90 day bank bill 3.40 3.57 3.57 3.58 3.58 3.57

NZGB 12/17 3.87 4.04 4.02 4.07 4.01 4.01

NZGB 03/19 3.99 4.15 4.12 4.17 4.11 4.11

NZGB 05/21 4.14 4.34 4.30 4.36 4.30 4.30

NZGB 04/23 4.27 4.48 4.44 4.50 4.43 4.43

2 year swap 3.96 4.21 4.18 4.21 4.16 4.15

5 year swap 4.39 4.60 4.57 4.61 4.54 4.53

RBNZ TWI 80.2 80.85 80.72 80.79 81.08 81.05

NZD/USD 0.8636 0.87 0.87 0.87 0.87 0.87

NZD/AUD 0.9225 0.92 0.93 0.93 0.93 0.93

NZD/JPY 87.60 88.40 88.33 88.52 88.81 88.85

NZD/GBP 0.5133 0.51 0.51 0.51 0.51 0.51

NZD/EUR 0.6302 0.64 0.64 0.64 0.64 0.64

AUD/USD 0.9362 0.94 0.94 0.93 0.94 0.94

EUR/USD 1.3703 1.35 1.36 1.35 1.36 1.36

USD/JPY 101.44 101.79 101.97 102.25 101.88 101.87

GBP/USD 1.6823 1.70 1.70 1.70 1.70 1.71

Oil (US$/bbl) 102.31 107.49 107.52 106.95 106.64 107.08

Gold (US$/oz) 1295.90 1282.63 1264.75 1268.00 1277.93 1315.00

Electricity (Haywards) 4.26 5.51 3.52 2.99 4.63 5.31

Baltic Dry Freight Index 1010 880 858 867 902 904

Milk futures (USD) 178 180 180 182 184 187


IMPORTANT NOTICE

The distribution of this document or streaming of this video broadcast (as applicable, “publication”) may be restricted by law in certain jurisdictions. Persons who receive this publication must inform themselves about and observe all relevant restrictions. 1. Disclaimer for all jurisdictions, where content is authored by ANZ Research: Except if otherwise specified in section 2 below, this publication is issued and distributed in your country/region by Australia and New Zealand Banking Group Limited (ABN 11 005 357 522) (“ANZ”), on the basis that it is only for the information of the specified recipient or permitted user of the relevant website (collectively, “recipient”). This publication may not be reproduced, distributed or published by any recipient for any purpose. It is general information and has been prepared without taking into account the objectives, financial situation or needs of any person. Nothing in this publication is intended to be an offer to sell, or a solicitation of an offer to buy, any product, instrument or investment, to effect any transaction or to conclude any legal act of any kind. If, despite the foregoing, any services or products referred to in this publication are deemed to be offered in the jurisdiction in which this publication is received or accessed, no such service or product is intended for nor available to persons resident in that jurisdiction if it would be contradictory to local law or regulation. Such local laws, regulations and other limitations always apply with non-exclusive jurisdiction of local courts. Before making an investment decision, recipients should seek independent financial, legal, tax and other relevant advice having regard to their particular circumstances. The views and recommendations expressed in this publication are the author’s. They are based on information known by the author and on sources which the author believes to be reliable, but may involve material elements of subjective judgement and analysis. Unless specifically stated otherwise: they are current on the date of this publication and are subject to change without notice; and, all price information is indicative only. Any of the views and recommendations which comprise estimates, forecasts or other projections, are subject to significant uncertainties and contingencies that cannot reasonably be anticipated. On this basis, such views and recommendations may not always be achieved or prove to be correct. Indications of past performance in this publication will not necessarily be repeated in the future. No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided. Additionally, this publication may contain ‘forward looking statements’. Actual events or results or actual performance may differ materially from those reflected or contemplated in such forward looking statements. All investments entail a risk and may result in both profits and losses. Foreign currency rates of exchange may adversely affect the value, price or income of any products or services described in this publication. The products and services described in this publication are not suitable for all investors, and transacting in these products or services may be considered risky. ANZ and its related bodies corporate and affiliates, and the officers, employees, contractors and agents of each of them (including the author) (“Affiliates”), do not make any representation as to the accuracy, completeness or currency of the views or recommendations expressed in this publication. Neither ANZ nor its Affiliates accept any responsibility to inform you of any matter that subsequently comes to their notice, which may affect the accuracy, completeness or currency of the information in this publication. Except as required by law, and only to the extent so required: neither ANZ nor its Affiliates warrant or guarantee the performance of any of the products or services described in this publication or any return on any associated investment; and, ANZ and its Affiliates expressly disclaim any responsibility and shall not be liable for any loss, damage, claim, liability, proceedings, cost or expense (“Liability”) arising directly or indirectly and whether in tort (including negligence), contract, equity or otherwise out of or in connection with this publication. If this publication has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. ANZ and its Affiliates do not accept any Liability as a result of electronic transmission of this publication. ANZ and its Affiliates may have an interest in the subject matter of this publication as follows: They may receive fees from customers for dealing in the products or services described in this publication, and their staff and

introducers of business may share in such fees or receive a bonus that may be influenced by total sales. They or their customers may have or have had interests or long or short positions in the products or services described in this

publication, and may at any time make purchases and/or sales in them as principal or agent. They may act or have acted as market-maker in products described in this publication. ANZ and its Affiliates may rely on information barriers and other arrangements to control the flow of information contained in one or more business areas within ANZ or within its Affiliates into other business areas of ANZ or of its Affiliates. Please contact your ANZ point of contact with any questions about this publication including for further information on these disclosures of interest. 2. Country/region specific information: Australia. This publication is distributed in Australia by ANZ. ANZ holds an Australian Financial Services licence no. 234527. A copy of ANZ's Financial Services Guide is available at http://www.anz.com/documents/AU/aboutANZ/FinancialServicesGuide.pdf and is available upon request from your ANZ point of contact. If trading strategies or recommendations are included in this publication, they are solely for the information of ‘wholesale clients’ (as defined in section 761G of the Corporations Act 2001 Cth). Persons who receive this publication must inform themselves about and observe all relevant restrictions. Brazil. This publication is distributed in Brazil by ANZ on a cross border basis and only following request by the recipient. No securities are being offered or sold in Brazil under this publication, and no securities have been and will not be registered with the Securities Commission – CVM. Brunei. Japan. Kuwait. Malaysia. Switzerland. Taiwan. This publication is distributed in each of Brunei, Japan, Kuwait, Malaysia, Switzerland and Taiwan by ANZ on a cross-border basis. European Economic Area (“EEA”): United Kingdom. ANZ in the United Kingdom is authorised by the Prudential Regulation Authority (“PRA”). Subject to regulation by the Financial Conduct Authority (“FCA”) and limited regulation by the PRA. Details about the extent of our regulation by the PRA are available from us on request. This publication is distributed in the United Kingdom by ANZ solely for the information of persons who would come within the FCA definition of “eligible counterparty” or “professional client”. It is not intended for and must not be distributed to any person who would come within the FCA definition of “retail client”. Nothing here excludes or restricts any duty or liability to a customer which ANZ may have under the UK Financial Services and Markets Act 2000 or under the regulatory system as defined in the Rules of the PRA and the FCA. Germany. This publication is distributed in Germany by the Frankfurt Branch of ANZ solely for the information of its clients. Other EEA countries. This publication is distributed in the EEA by ANZ Bank (Europe) Limited (“ANZBEL”) which is authorised by the PRA and regulated by the FCA and the PRA in the United Kingdom, to persons who would come within the FCA definition of “eligible counterparty” or “professional client” in other countries in the EEA. This publication is distributed in those countries solely for the information of such persons upon their request. It is not intended for, and must not be distributed to, any person in those countries who would come within the FCA definition of “retail client”. Fiji. For Fiji regulatory purposes, this publication and any views and recommendations are not to be deemed as investment advice. Fiji investors must seek licensed professional advice should they wish to make any investment in relation to this publication. Hong Kong. This publication is distributed in Hong Kong by the Hong Kong branch of ANZ, which is registered at the Hong Kong Monetary Authority to conduct Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate finance) regulated activities. The contents of this publication have not been reviewed by any regulatory authority in Hong Kong. If in doubt about the contents of this publication, you should obtain independent professional advice.


IMPORTANT NOTICE

India. This publication is distributed in India by ANZ on a cross-border basis. If this publication is received in India, only you (the specified recipient) may print it provided that before doing so, you specify on it your name and place of printing. Further copying or duplication of this publication is strictly prohibited. New Zealand. This publication is distributed in New Zealand by ANZ Bank New Zealand Limited. This publication is intended to be of a general nature, does not take into account your financial situation or goals, and is not a personalised adviser service under the Financial Advisers Act 2008. Oman. This publication has been prepared by ANZ. ANZ neither has a registered business presence nor a representative office in Oman and does not undertake banking business or provide financial services in Oman. Consequently ANZ is not regulated by either the Central Bank of Oman or Oman’s Capital Market Authority. The information contained in this publication is for discussion purposes only and neither constitutes an offer of securities in Oman as contemplated by the Commercial Companies Law of Oman (Royal Decree 4/74) or the Capital Market Law of Oman (Royal Decree 80/98), nor does it constitute an offer to sell, or the solicitation of any offer to buy non-Omani securities in Oman as contemplated by Article 139 of the Executive Regulations to the Capital Market Law (issued vide CMA Decision 1/2009). ANZ does not solicit business in Oman and the only circumstances in which ANZ sends information or material describing financial products or financial services to recipients in Oman, is where such information or material has been requested from ANZ and by receiving this publication, the person or entity to whom it has been dispatched by ANZ understands, acknowledges and agrees that this publication has not been approved by the CBO, the CMA or any other regulatory body or authority in Oman. ANZ does not market, offer, sell or distribute any financial or investment products or services in Oman and no subscription to any securities, products or financial services may or will be consummated within Oman. Nothing contained in this publication is intended to constitute Omani investment, legal, tax, accounting or other professional advice. People’s Republic of China. If and when the material accompanying this publication does not only relate to the products and/or services of Australia and New Zealand Bank (China) Company Limited (“ANZ China”), it is noted that: This publication is distributed by ANZ or an affiliate. No action has been taken by ANZ or any affiliate which would permit a public offering of any products or services of such an entity or distribution or re-distribution of this publication in the People’s Republic of China (“PRC”). Accordingly, the products and services of such entities are not being offered or sold within the PRC by means of this publication or any other method. This publication may not be distributed, re-distributed or published in the PRC, except under circumstances that will result in compliance with any applicable laws and regulations. If and when the material accompanying this publication relates to the products and/or services of ANZ China only, it is noted that: This publication is distributed by ANZ China in the Mainland of the PRC. Qatar. This publication has not been, and will not be lodged or registered with, or reviewed or approved by, the Qatar Central Bank ("QCB"), the Qatar Financial Centre ("QFC") Authority, QFC Regulatory Authority or any other authority in the State of Qatar ("Qatar"); or authorised or licensed for distribution in Qatar; and the information contained in this publication does not, and is not intended to, constitute a public offer or other invitation in respect of securities in Qatar or the QFC. The financial products or services described in this publication have not been, and will not be registered with the QCB, QFC Authority, QFC Regulatory Authority or any other governmental authority in Qatar; or authorised or licensed for offering, marketing, issue or sale, directly or indirectly, in Qatar. Accordingly, the financial products or services described in this publication are not being, and will not be, offered, issued or sold in Qatar, and this publication is not being, and will not be, distributed in Qatar. The offering, marketing, issue and sale of the financial products or services described in this publication and distribution of this publication is being made in, and is subject to the laws, regulations and rules of, jurisdictions outside of Qatar and the QFC. Recipients of this publication must abide by this restriction and not distribute this publication in breach of this restriction. This publication is being sent/issued to a limited number of institutional and/or sophisticated investors (i) upon their request and confirmation that they understand the statements above; and (ii) on the condition that it will not be provided to any person other than the original recipient, and is not for general circulation and may not be reproduced or used for any other purpose. Singapore. This publication is distributed in Singapore by the Singapore branch of ANZ solely for the information of “accredited investors”, “expert investors” or (as the case may be) “institutional investors” (each term as defined in the Securities and Futures Act Cap. 289 of Singapore). ANZ is licensed in Singapore under the Banking Act Cap. 19 of Singapore and is exempted from holding a financial adviser’s licence under Section 23(1)(a) of the Financial Advisers Act Cap. 100 of Singapore. In respect of any matters arising from, or in connection with the distribution of this publication in Singapore, contact your ANZ point of contact. United Arab Emirates. This publication is distributed in the United Arab Emirates (“UAE”) or the Dubai International Financial Centre (as applicable) by ANZ. This publication: does not, and is not intended to constitute an offer of securities anywhere in the UAE; does not constitute, and is not intended to constitute the carrying on or engagement in banking, financial and/or investment consultation business in the UAE under the rules and regulations made by the Central Bank of the United Arab Emirates, the Emirates Securities and Commodities Authority or the United Arab Emirates Ministry of Economy; does not, and is not intended to constitute an offer of securities within the meaning of the Dubai International Financial Centre Markets Law No. 12 of 2004; and, does not constitute, and is not intended to constitute, a financial promotion, as defined under the Dubai International Financial Centre Regulatory Law No. 1 of 200. ANZ DIFC Branch is regulated by the Dubai Financial Services Authority (“DFSA”). The financial products or services described in this publication are only available to persons who qualify as “Professional Clients” or “Market Counterparty” in accordance with the provisions of the DFSA rules. In addition, ANZ has a representative office (“ANZ Representative Office”) in Abu Dhabi regulated by the Central Bank of the United Arab Emirates. ANZ Representative Office is not permitted by the Central Bank of the United Arab Emirates to provide any banking services to clients in the UAE. United States. If and when this publication is received by any person in the United States or a "U.S. person" (as defined in Regulation S under the US Securities Act of 1933, as amended) (“US Person”) or any person acting for the account or benefit of a US Person, it is noted that ANZ Securities, Inc. (“ANZ S”) is a member of FINRA (www.finra.org) and registered with the SEC. ANZ S’ address is 277 Park Avenue, 31st Floor, New York, NY 10172, USA (Tel: +1 212 801 9160 Fax: +1 212 801 9163). Except where this is a FX- related or commodity-related publication, this publication is distributed in the United States by ANZ S (a wholly owned subsidiary of ANZ), which accepts responsibility for its content. Information on any securities referred to in this publication may be obtained from ANZ S upon request. Any US Person receiving this publication and wishing to effect transactions in any securities referred to in this publication must contact ANZ S, not its affiliates. Where this is an FX- related or commodity-related publication, it is distributed in the United States by ANZ's New York Branch, which is also located at 277 Park Avenue, 31st Floor, New York, NY 10172, USA (Tel: +1 212 801 9160 Fax: +1 212 801 9163). Commodity-related products are not insured by any U.S. governmental agency, and are not guaranteed by ANZ or any of its affiliates. Transacting in these products may involve substantial risks and could result in a significant loss. You should carefully consider whether transacting in commodity-related products is suitable for you in light of your financial condition and investment objectives. ANZ S is authorised as a broker-dealer only for US Persons who are institutions, not for US Persons who are individuals. If you have registered to use this website or have otherwise received this publication and are a US Person who is an individual: to avoid loss, you should cease to use this website by unsubscribing or should notify the sender and you should not act on the contents of this publication in any way.

This document has been prepared by ANZ Bank New Zealand Limited, Level 7, 1 Victoria Street, Wellington 6011, New Zealand, Ph 64-4-802 2212, Fax 64-4-496 8639, e-mail [email protected], http://www.anz.co.nz

new zealand economic s market focus · st rate st ront end is l g interest stil r, but alway a...

Documents