NZD The NZD slid lower along with its peers on Friday in a risk averse market. NZD/USD posted a 0.7% loss to close at 0.7820. NZD/USD resisted multiple challenges of the 0.7800 level on Friday. But with the market’s mind firmly on a waning global growth story (and the USD wont to rise in that environment), we doubt that level will hold for much longer. The AUD fell the hardest on Friday, seeing the NZD/AUD cross gain 0.5% to close almost exactly on 0.9000. We can see a case for the cross to rise further, as AUD remains more exposed to slowing in the industrial sectors of China’s economy. We still pick 0.89 for the cross by year-end. The JPY’s outperformance in the risk negative environment has seen NZD/JPY lose 0.8% to sit just above 84.0 this morning. We had regarded this as the likely bottom end of the range. Should market sentiment steadily worsen, we envisage a slow decline toward 83.0. Note that during the emerging market’s rout early this year, this highly risksensitive cross briefly dropped below 82.0. This week, NZ watchers will be focussed on the GDT auction, the results of which will be released in the wee hours of Thursday morning. After the 7.0% decline last time, another significantly negative result will have NZD/USD testing the 0.7700 low for 2014. Today, we mark initial support at 0.7780, and resistance at 0.7870. Majors For the second night in a row, currencies played second fiddle to the negative price action in equity markets. Amid the pessimism, the USD found a safe-haven bid, with the Bloomberg Dollar Spot Index gaining 0.4%. The JPY stamped its safe-haven credentials by being the only major currency to gain against the USD. Equity markets were a veritable sea of red on Friday, with benchmark indices on both sides of the Atlantic down sharply. The S&P 500 lost 1.2%, while the Euro Stoxx 50 is off by 1.7%. The latter sits a whisker above its 200-day moving average, the first time that technical support has been tested in nearly two years. The VIX ‘fear’ index hit 22.2 on Friday, its highest since 2012. The driver remains growing pessimism about the outlook for global growth. Rather than fresh data, though, it is the multitude of policymakers expressing ‘concern’ about the prospects for the euro-zone/Japan/China that is fuelling the poor sentiment. Of the comments made over the weekend at the IMF/World Bank annual meeting, Stanley Fischer’s will likely get the most airtime at the open this week. The Fed Vice Chair noted that “if foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the Fed to remove accommodation more slowly than otherwise.” ECB President Mario Draghi maintained a now-familiar downbeat demeanour, saying that he fears the euro-zone slowdown may postpone investment decision by firms and households. Still, he refused to be drawn into confirming that sovereign bond purchases will be required. In the currency space, the gravitational pull of the USD was evident in the reaction to Canada’s employment report. There, employment jumped by 74.1k, against expectations for a 20k gain. The details were strong, with full-time jobs accounting for 69.3k of that. Despite this punchy outturn, CAD lost 0.1% against the USD on the day, to 1.120. But should the strong element of risk aversion in markets suddenly dissipate, we would return to being cautious (but still bullish) on the USD. Speculative positioning now shows signs of stretched, with net USD longs rising to 306k contracts, according to CFTC data. This is rapidly approaching the high-water mark of 350k, hit during last year’s taper tantrum. This week, expect investors to remain on edge about further signs that the pace of global growth is slipping. With that in mind, there is plenty of data on offer, including Chinese trade (due today), Japanese industrial production, and Germany’s ZEW survey. The speaking circuit for central bankers seemingly never sleeps, with the usual assortment of Fed hawks and doves scattered through the week. Notably, Fed Chair Yellen steps up to the podium on Friday night. But given that she is addressing a conference on inequality, she may well steer clear of making any controversial noises on monetary policy. Other news: *AU home loans for August -0.9% m/m vs +0.2% exp. Fixed Interest NZ swaps closed little changed on Friday. On Friday night, US 10-year yields slumped from intra-night highs above 2.34% to close at 2.28%. NZ 2 and 5-year swap closed at 4.02% and 4.28% respectively. The 2-10s curve sits at 45bps. We do not expect curve inversion in this cycle, and believe we may be approaching cyclical trough. However, near-term the curve is almost entirely in the hands of moves of US Treasuries as the short-end remains tightly range-bound. data front. Today we receive September Food Prices. We expect a 0.1% fall as part of the 0.5% reading (1.2%y/y) we expect for Q3 CPI (due 23 October). So nothing in this data to spur NZ yields any higher. On Friday night, US Treasuries rallied across the curve, as the fall in equities was led by cyclical sectors. US 10-year yields, at 2.28%, have dipped to their lowest levels since mid-June last year. US 2-year yields have returned to levels they traded at, in mid-August this year, at 0.42%. These moves will likely see downward pressure at the longend of the NZ curve today. It is quite a thin week on the NZ Currencies Low 0.7801 0.8680 1.2605 1.6009 107.55 NZD AUD EUR GBP JPY High 0.7875 0.8785 1.2709 1.6098 108.15 Futures High Low Last 97.32 97.39 96.63 97.32 97.43 96.675 97.32 97.36 96.595 97.32 97.42 96.67 96.24 96.24 96.23 96.24 NZD Crosses NZD/EUR NZD/JPY NZD/GBP NZD/AUD High 0.08 0.47 1.60 2.35 3.07 Low 0.08 0.42 1.53 2.28 3.01 Last 0.08 0.42 1.53 2.28 3.01 FX Open Australia 3 mth 3 Yr 10 Yr NZ 3 mth US Interest rates Open 1 Yr 0.08 2Yr 0.44 5 Yr 1.56 10 Yr 2.31 30 Yr 3.05 AUD= NZD= CAD= JPY= EUR= GBP= AUD/EUR AUD/JPY AUD/GBP AUD/NZD High 86.29 Low 83.59 Last 85.8 Gold 1226 1217 1223 1224 Asian FX Open 0.8689 0.7817 1.1172 107.62 1.2632 1.6072 High 0.8700 0.7829 1.1184 107.62 1.2653 1.6089 Low 0.8679 0.7800 1.1170 107.55 1.2620 1.6068 Last 0.8696 0.7818 1.1177 107.56 1.2640 1.6074 AUD Crosses Last Previous 0.6185 0.6189 84.09 84.14 0.4863 0.4861 0.8991 0.8999 Commodities Open Crude 84.39 SGD= IDR= THB= KRW= TWD= PHP= Previous 0.6878 93.50 0.5404 1.1114 NZGB NZGB NZGB NZGB 5 03/15/19 3 04/15/20 6 05/15/21 5 1/2 04/15/23 Open 493.5 16.68 63.94 High 508.5 16.76 65.50 Low 488.3 16.52 63.60 Last 498.5 16.6 64.1 275.6 130.19 Equities Open High Low Last #N/A N/A#N/A N/A#N/A N/A 1.2765 #N/A N/A#N/A N/A#N/A N/A 12222 32.5 32.5 32.4 32.5 #N/A N/A#N/A N/A#N/A N/A 1070 #N/A N/A#N/A N/A#N/A N/A 30.4 #N/A N/A#N/A N/A#N/A N/A 44.8 NZ Government Bonds Last 0.6880 93.53 0.5410 1.1123 Wheat Sugar Cotton CRB Open Now Change Dow 16655 16544 -115.2 S&P 500 1925.6 1906.1 -22.1 Nasdaq 4354.6 4276.2 -102.1 FTSE 6431.9 6340 -91.9 DAX 8924.6 8788.8 -216.2 SPI (Sycom)#N/A Field Not #N/A Applicable Real Time #N/A Real Time NZ Swaps Now 3.906 3.996 4.013 4.075 1 Yr 2 Yr 5 Yr 10 Yr Last Price 3.792 4.023 4.280 4.468 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: 7:58