FX Daily

NZD
Euro Stoxx 50 2.2% stronger.
The NZD is 1.4% stronger this morning at 0.7830. In the
aftermath of the Swiss National Bank’s shock decision (see
Majors), NZD/USD pushed as high as 0.7885.
For us, this simply makes the ECB’s job next Thursday all
the more difficult. The market now expects a Bank of
Japan-style shock and awe move, not the softly-softly
approach the ECB has taken to date. Certainly the €500b
figure bandied about last week would disappoint.
We put NZD’s strength down to two factors. First, the
SNB’s move evoked whippy price moves that drove traders
to the sidelines. The market had been pushing NZD/USD
lower, hoping for a break of 0.7700. When investors
stepped back last night, the path of least resistance was
higher.
Second, after NZD/AUD cracked lower on an excellent
Australian jobs report (see Majors), short-term investors
jumped on the bandwagon, looking for a break below
0.9400. But again, the SNB’s decision likely caused those
investors to abandon their positions, seeing NZD/AUD ping
from 0.9400 to 0.9550 in one breath.
Today, there are no local data releases. We suspect
markets will remain volatile heading into the weekend, and
pick a rather wide 0.7750 – 0.7900 range today.
Majors
The Swiss National Bank (SNB) shirt-fronted markets when
it announced it was abandoning the 1.20 floor in EUR/CHF
it has enforced since September 2011. The market’s
collective jaw dropped, and so did the value of Swiss
assets. At one point CHF, the world’s sixth most traded
currency, was 28% lower for the day. It has recovered
about half those losses as this note goes to pixel.
It is hard to overstate the magnitude of the SNB’s decision,
especially for the consequences on the Swiss economy.
SNB Governor Jordan cut interest rates by 50bps when he
removed the floor, allegedly to provide some offset to the
monetary tightening caused by a sharply stronger
exchange rate. But our NAB colleague Gavin Friend
estimates that, at CHF’s strongest point last night, the net
impact of the SNB’s decision was equivalent to a 1000bp
(i.e. 10%) rate hike. Little surprise that Swiss equities are
9.4% lower for the day, even off their lows.
Leaving the direct implications for the Swiss economy
aside, the subtext of the SNB’s decision ahead of the
ECB’s meeting next week is that Governor Jordan is
convinced (and might even know for sure) that a significant
bond-buying programme is imminent. That would incite
further downward pressure on the EUR/CHF floor, requiring
the SNB to step in and defend it. Investors picked up on the
implication quickly and EUR/USD is 1.4% lower for the day
at 1.1620, having recovered from 1.1570 earlier. NonSwiss European equities reacted positively, too, with the
Separately, the AUD is one of the better performers
overnight, after an excellent labour market report
yesterday. The 37.5k rise in employment took the
unemployment rate down to 6.1%, even with a rise in
participation. Nearly every aspect of the report was better
than expected. And while there are certainly question
markets over the survey given its credibility issues in recent
months, this tone is more consistent with other indicators.
In all, the report makes an RBA rate cut in February less
likely. AUD/USD is 0.8% stronger for the day at 0.8%.
Very little attention was paid to US data overnight, but for
completeness, we note that the Empire manufacturing
index beat at expectations at +9.95 vs +5.00. On the other
hand, the Philly Fed survey disappointed at +6.3 vs +18.7.
The upshot is that these surveys, having been out of kilter
with other US data of late, have become more believable,
and point to a slightly softer manufacturing picture than in
recent months. This is consistent with idea that the US
economy will slow slightly from 5.0% annualised growth
rate the US achieved in Q3 2014.
Tonight, shell-shocked investors will find it hard to
concentrate on data releases. We pick the US U of
Michigan consumer confidence survey to be the highlight.
Fixed Interest
NZ yields closed little changed yesterday. Overnight, the
relentless rally in US Treasuries continued.
NZ swaps initially traded lower yesterday morning.
However, after the stronger than expected AU employment
report they pushed higher in the afternoon. The result was
swaps closed little change across the curve. 2-year sits at
3.78% while 10-year is at 3.88%.
On the back of the AU employment data AU swaps gapped
higher. Indicatively, 3-year jumped from 2.40% to almost
2.50%. However, overnight, as US yields have slipped
again, AU swaps have returned to trade at their pre-data
levels.
Late last evening, the Swiss National Bank surprised the
market by removing its cap on the franc and cutting rates. It
cut its three-month Libor rate by 50bps to a new range
between -1.25% and -0.25%. The shift in tactics has been
timed to bite ahead of the ECB’s meeting next week.
releases. Tonight, the markets focus will be on Dec CPI
readings for Eurozone and the US.
The move sent ripples through markets. The yield on
German 10-year bonds dropped from 0.50% to 0.47%
while that for US equivalents subsequently declined from
1.88% to 1.77%.
Expect these moves to see further downward pressure on
NZ long-end yields today, in the absence of domestic data
Currencies
Low
0.7705
0.8150
1.1568
1.5150
116.24
NZD
AUD
EUR
GBP
JPY
High
0.7885
0.8295
1.1778
1.5269
117.80
Futures
High
Low
Last
97.34 97.39
97.85 97.96
97.345 97.515
97.33
97.84
97.34
97.35
97.94
97.50
96.32
96.32
96.32
96.32
NZD Crosses
NZD/EUR
NZD/JPY
NZD/GBP
NZD/AUD
High
0.17
0.53
1.37
1.90
2.50
Low
0.15
0.43
1.21
1.75
2.39
Last
0.15
0.44
1.23
1.77
2.40
FX
Open
Australia
3 mth
3 Yr
10 Yr
NZ
3 mth
US Interest rates
Open
1 Yr
0.16
2Yr
0.49
5 Yr
1.32
10 Yr
1.86
30 Yr
2.47
AUD=
NZD=
CAD=
JPY=
EUR=
GBP=
AUD/EUR
AUD/JPY
AUD/GBP
AUD/NZD
High
51.27
Low
46.41
Last
46.6
Gold
1267
1226
1261
1229
Asian FX
Open
0.8150
0.7719
1.1951
117.33
1.1789
1.5234
High
0.8295
0.7890
1.1996
117.94
1.1793
1.5267
Low
0.8133
0.7705
1.1803
116.24
1.1568
1.5150
Last
0.8220
0.7825
1.1944
116.44
1.1615
1.5190
AUD Crosses
Last Previous
0.6737 0.6545
91.11
90.55
0.5152 0.5066
0.9520 0.9473
Commodities
Open
Crude
48.60
NZ Government Bonds
Last
0.7077
95.72
0.5412
1.0505
Previous
0.6912
95.62
0.5350
1.0555
NZGB
NZGB
NZGB
NZGB
5 03/15/19
3 04/15/20
6 05/15/21
5 1/2 04/15/23
Open
540.5
14.90
59.05
High
545.0
15.38
60.27
Low
528.0
14.89
58.84
Last
530.8
15.4
59.4
220.2
144.15
Equities
Last
1.3293
12555
32.8
1083
31.7
44.7
SGD=
IDR=
THB=
KRW=
TWD=
PHP=
Wheat
Sugar
Cotton
CRB
Open Now
Change
Dow
17436 17346
-81.5
S&P 500
2013.8 1995.3
-16.0
Nasdaq
4657.5 4580.4
-58.9
FTSE
6388.5 6498.8
110.3
DAX
9933.5 10033
215.5
SPI (Sycom)#N/A Field Not
#N/A
Applicable
Real Time
#N/A Real Time
NZ Swaps
Now
3.429
3.447
3.458
3.462
1 Yr
2 Yr
5 Yr
10 Yr
Last Price
3.708
3.775
3.840
3.875
Please note the high / low rates are indicative only. They are specific to the trading hours of each asset, which may differ. Please refer to your Dealer for confirmation.
Source: Bloomberg
As at: 8:04

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