By Kymberly Martin
NZD
Underpinned by ongoing onshore appetite as well as offshore investor demand the NZDUSD pushed higher through the London session, with “short” trading positions run over in the recovery to the 0.8150 level.
Once again the NZD has held at the key 0.8060 level in the face of an Asian session yesterday that had seen the USD in favour.
The NZDUSD trades at 0.8130 currently, while the NZD is once again noticeably firmer against the AUD.
Traders continuing to favour the “long” NZDAUD position after Fonterra’s first forecast for the 2013/14 milk price was pegged at $7.00 per kilogram of milksolids.
It is 21% higher than the $5.80 for the season just finishing (unchanged from previous forecast). We expected a decent lift, but this even exceeded those expectations. This alone will inject the thick end of $2 billion into the economy over the coming 18 months.
Coupled with the 6% lift in milk production that we have pencilled in and it totes up to around $2.7 billion more dairy revenue than the previous season.
This is an equivalent to 1¼% of GDP – it will be a significant support to economic growth ahead.The essence of this is likely to be more than the RBNZ implicitly had factored into its forecasts.
We would note this is another factor that is on the stronger side of its March MPS forecasts.
Fundamentally the news in this is that Fonterra has signalled a degree of confidence in the international dairy market and that international prices will not fall too far from their current elevated levels.
World supply is expected to remain tight and prices stay elevated through 2013. Now we go back to watching the balance of movements in the twice-a-month auctions and the currency.
Today; there’s plenty of attention locally. At 10:45am April building consents which our research team suggest will hopefully bounce right back, having been impaired by very low apartment numbers in March, as well as trading-day impacts.
Also watch at 3pm for updated RBNZ FX transaction data given Wheeler’s comments in past weeks to “intervention” undertaken by the RBNZ.
Speaking of Wheeler, he is giving an on the record speech, “Forces affecting the New Zealand economy and policy challenges”, watch at 8am for this on the RBNZ website. Two weeks out from the MPS this should be of interest.
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Majors
Overnight news includes the OECD releasing their latest forecasts. The organisation now expects the global economy to grow by 3.1% this year, down 0.3pp from the November forecast.
Growth in 2014 is now expected to be 4.0% down from 4.2% previously.
The US is expected to grow by 1.9% in 2013 which marks a 0.1p fall from November, while growth forecasts for 2014 are left unchanged at 2.8%. That leaves the US outperforming the Eurozone significantly with the OECD’s decision to slash its forecast from -0.1% in 2013 to -0.6% and from 1.3% to 1.1% bringing into line with our own expectations.
Australia has been revised down from 3.0% to 2.6%, but with the growth outlook remaining unchanged in 2014 at 3.2%.
Elsewhere overnight to note, the IMF cutting their Chinese GDP forecasts, poor German jobs data updates though riper inflation numbers.
Commentary from various officials; Asmussen, Noyer and Mersch noted suggests a push back against the idea of easier monetary policy in Europe, i.e. negative rates.
BoE Deputy Governor described the UK’s export performance since 2008 as ‘distinctly underwhelming’ observing that net exports have added 1.5 percentage points to GDP growth since the start of the recession.
The Bank of Canada left policy unchanged, leaving its cash rate at 1.0%.
Attention today on Australia, the Private New Capital Expenditure (CAPEX) report for the March quarter will probably be the most important release for Australian markets this week. This report is an important input into the calculation of business investment in the GDP print, due 5 May.
There are two aspects to the data: first the amount of actual expenditure on plant and equipment and non-residential construction during the quarter; and second investment intentions for the rest of 2012-13 and 2013-14.
The 2013-14 expectations data are a real focus for markets at present because of the RBA’s hopes for a revival in non-mining investment ahead, part of the solution to filling the hole left when the mining investment boom peaks out.
Our forecast are for a 1.5% drop in Capex in Q1 (mkt f/c +0.5%) we also expect a modest rise in the 2nd Estimate for 2013-14 of about 1½%.
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