NZD spurned as USD rises

Kia ora,

Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news we have been re-rated lower on currency markets.

We start today noting the US dollar is surging higher in markets convinced the US Fed will start reducing some of its money printing operations soon. The NZD has been particularly hard hit by the move, undermined by the perception offshore that we are losing the pandemic struggle.

In the US, the number of signed contracts to buy existing homes in the US recovered +8.1% in August from July, reversing two months of declines. More sellers are coming into this market.

But last week, American mortgage applications actually fell and home loan interest rates rose slightly. So perhaps the September house sales won't be as strong.

In China, their central bank injected liquidity into their banking system for a ninth consecutive day, adding NZ$22 bln today in reverse repo transactions at 2.35%. But it isn't unusual for them to juice their financial system at this time, ahead of next week's National Day holidays. What is unusual is the quantum that is building up, juiced by the Evergrande contagion.

EU economic sentiment edged higher in September after a fall in August, boosted by optimism among consumers and in the industry and construction sectors, while inflation expectations continued to rise sharply. In fact, German import prices rose at the startling rate of +16.5% in August.

Global demand for international aircargo is strong with volumes up +8.6% in August compared with August 2019. It remains at elevated levels we have seen for the past four months. But it is growth that seems to be passing the Asia/Pacific region by, inhibited by pandemic restrictions in the region.

In New Zealand, the Government has announced a one-off resident visa for up to 165,000 migrants who are currently in the country. This creates a residency pathway for them, including 5,000 health and aged care workers, around 9,000 farm workers, 15,000 in construction, and more than 800 teachers.

In Australia, their regulators have confirmed they are discussing how to clamp down on housing market risks and are preparing to release new lending restriction before Christmas.

The UST 10yr yield opens today at just over 1.54% after rising as high as 1.56% overnight and dipping to 1.50%. 

The price of gold will start today down another -US$12 at US$1726/oz and a six month low. Silver has fallen harder, now at back to where it was in June 2020.

And oil prices have changed little overnight, still just on US$75/bbl in the US, while the international Brent price is still just over US$78bbl. 

The Kiwi dollar opens today sharply lower at just on 68.6 USc and almost a full -1c drop since this time yesterday. Against the Australian dollar we are quite soft at just on 95.6 AUc. Against the euro we down to 59.2 euro cents. That means our TWI-5 starts today at 72.6, down -60 bps and down towards the lower end of the 72-74 range of the past eleven months.

The bitcoin price is little-changed since this time yesterday, up +0.6% to be now at US$41,505. Volatility in the past 24 hours has been moderate at just over +/- 2.2%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we’ll do this again tomorrow.