GBP weaker as Brexit headlines gain attention; devil in the detail with Balance of Payments data; another weak dairy auction, contrary to analyst expectations

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A bit of a dark and stormy night for some markets. The NZ$ opens this morning hugging the US66 cent level, caught in amongst a number of major currencies who have struggled overnight.

Later this morning we can share more detailed analysis of the latest GDT auction, but at first glance there has been a weak outcome contrary to most analysis looking for a slight uptick in prices paid. It is an outcome though that is consistent with a market still struggling with supply issues, especially from parts of Europe where government largesse is buffering producers from the reality of the real world.

GBP weakness is also a feature of last night as the market eyes Brexit headlines once more. Polls that show the “Leave” vote in the ascendancy grabbed attention. The press reports voters who want Britain to leave the EU are more motivated than those in favour of remaining in Europe, a fact which is being reflected in most polling to some degree.

The JPY is one of the few currencies to find some favour versus the US$, responding to yesterday’s update from the BOJ.

While very few analysts forecast any policy adjustments a downbeat Governor Kuroda and no further stimulus weighed on sentiment across markets in Asia. Policy moves in Japan have been like pushing on a piece of dental floss, ineffectual and failing to spur inflation expectations or activity.

The RBA Minutes of yesterday came and went with some semantic debate about the wording but for now the Board are in no hurry to alter policy settings. They concluded that “there were reasonable prospects for continued growth in the economy and that it was appropriate to leave the cash rate unchanged.

On the song sheet today, well some more local focus for openers. Our analysts write that they will be scouring the export and import results of the Q4 Balance of Payments to see if they skew their attitude to GDP at the eleventh hour.

Overall, however, these external accounts are likely to prove a non-issue, notwithstanding pronounced weakness in dairy export revenue. They anticipate a year to December 2015 current account deficit of $7.9b. Call that 3.2% as a proportion of GDP, compared to the 3.3% printed for the year to September. The market anticipates 3.3%. To be sure, they expect the current account deficit to push back out over 2016/17; but to barely above 4% of GDP – the 20-year historical average for New Zealand.

This comes ahead of the update of Q4 GDP set for tomorrow morning. Our house call is for 0.7% which is in line with the market and the RBNZ, with a gut feel that there is a risk for a marginally firmer print.

The big dance for most focus is the FOMC of course. As most commentary notes nobody expects action at this meeting so analysts will closely parse the statement.

Traders and analysts keen to see how the committee and Chair view an economy close to full employment with some signs of inflation versus the risks to the outlook for their economy, are they tilted to the upside or downside?

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Kymberly Martin is on the BNZ Research team. All its research is available here.