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ab

Fixed Income & FX Research
FX - Strategy

UBS Investment Research
FX Morning Adviser

Global

A Lone Hawk Remains

30 October 2013
www.ubs.com/fx

Until last week, only two G10 central banks stood ready to tighten. But the
Bank of Canada has since dropped its tightening bias – a message reinforced
during Tuesday’s parliamentary testimony.
Could the RBNZ now follow suit, or at least materially dilute the hawkishness
of Thursday’s policy announcement? We doubt it.
Not enough has changed since the previous meeting to justify such a shift in
tone. True, the NZD TWI exchange rate (76.36 at the time of writing) is now
stronger than the RBNZ’s own projections (74.7), and this has tightened
conditions to a degree. But inflation has risen sharply too, coming in above
RBNZ forecasts for Q3, although still comfortably inside the target band.
What about the sudden 7% drop in mortgage approvals since property cooling
measures were introduced on Oct 1? This could indeed reduce the urgency for
a rate hike eventually, but it’s far too soon for the RBNZ to declare victory
over the regional house price boom. After all, what matters is whether house
prices react, and we will not have a good sense of that until mid-November.
In any event, rates markets have already priced in a reduced likelihood of a rate
hike in March precisely because mortgage approvals have declined (Chart 1).
AUDNZD has already adjusted too to reflect this risk (Chart 2).
The wildcard then is whether the policy statement expresses greater concern
over the latest bout of currency strength. The Sept 12th policy announcement
observed that: “Despite having fallen on a trade-weighted basis since May
2013, the exchange rate remains high. A lower rate would reduce headwinds
for the tradables sector and support export industries.” Governor Wheeler
would likely need to go beyond this for NZDUSD to suffer further damage –
and that is by no means a guaranteed outcome.
Consequently, we stay long an AUD put / NZD call spread with strikes at
1.1666 and 1.1000.
Chart 1: Decline in mortgage approvals already being priced in
2.76

Chart 2: AUDNZD has already priced in the risks too

OIS-implied OCR rate at March 13th 2014 RBNZ

AUDNZD and 2y Swap Spread

first evidence of
mortgage impact

2.72
AUDNZD

%

2.7
2.68
2.66

200

1.35

150

1.3

100

1.25

50

1.2

0

1.15

2.64

1.1

2.62
2.6
16-Sep

250

1.4

AUDNZD

-50

2y swap spread

-100

1.05

23-Sep

30-Sep

Source: Bloomberg, UBS FX Strategy

07-Oct

14-Oct

21-Oct

28-Oct

1
Jan-07

-150
-200
Jul-08

Jan-10

Source: Bloomberg, UBS FX Strategy

This report has been prepared by UBS Securities Pte. Ltd. (Reg. No. 198500648C)

Jul-11

Jan-13

AUD-NZD swap spread (bp)

2.74

1.45

FX Morning Adviser 30 October 2013

FX Technicals
EURUSD

BULLISH

The recent setback is staged from the critical resistance at 1.3833. This move
lower is viewed as a correction within a bullish trend and downside will be
limited. Support is at 1.3695 ahead of 1.3610.

USDJPY

NEUTRAL

Resistance is at 99.07, a break above which would open 100.61. Support is at
97.46 ahead of 96.57.

GBPUSD

BULLISH

The latest weakness does not change the broader bullish picture. Any further
downside should find strong support at 1.5894. Resistance is at 1.6145 ahead of
1.6260.

USDCHF

BEARISH

The pair is unwinding its overextended downside conditions. Upside will be
viewed as a recovery and it is currently testing the resistance at 0.9001. The next
main resistance is at 0.9068. Support is at 0.8944 ahead of 0.8864.

AUDUSD

NEUTRAL

The pair is under selling pressure, with strong support 0.9410. A close below this
would be negative, exposing 0.9281. Resistance is at 0.9623 ahead of 0.9758.

USDCAD

BULLISH

With the MACD above its zero line, this is a bullish condition; there’s scope for
more upside and no major resistance until 1.0568. Support is at 1.0428 ahead of
1.0366.

EURCHF

NEUTRAL

Resistance is at 1.2376 ahead of 1. 2415. Support is at 1.2338 ahead of 1.2277.

EURGBP

NEUTRAL

The next major resistance focus is at 0.8603. A close above this will be positive,
as the MACD is already above its zero line, this is a bullish condition. Support is
at 0.8505.

EURJPY

BULLISH

Resistance is at 135.51, a break above which would open the critical 137.26.
Support is at 133.89 ahead of 132.65.

*NOTE: The trend for each currency pair as defined in the table is determined by our proprietary model and is independent of our discretionary interpretation
of price action
Source: UBS FX Strategy

UBS 2

FX Morning Adviser 30 October 2013

Key Events
Country

Japan
Japan
Australia
Japan
Switzerland
Switzerland
Euro Area
Sweden
Germany
Germany
Norway
Norway
Euro Area
Euro Area
Euro Area
Euro Area
Euro Area
Euro Area
United States
United States
United States
United States
United States
United States
Germany
Germany
Germany
Germany
United States
United States
United States
Euro Area
Euro Area
New Zealand
New Zealand

GMT

23:50
23:50
00:00
04:00
07:00
08:00
08:05
08:30
08:55
08:55
09:00
09:00
10:00
10:00
10:00
10:00
10:00
10:30
11:00
12:15
12:30
12:30
12:30
12:30
13:00
13:00
13:00
13:00
18:00
18:00
18:00
18:00
19:00
20:00
21:45

Release/Event

Industrial Production (Sep P)
Industrial Production (Sep P)
HIA New Home Sales (Sep)
Vehicle Production (Sep)
UBS Consumption Indicator (Sep)
KOF Leading Indicator (Oct)
ECB's Constancio Speaks
Wages Non-Manual Workers (Aug)
Unemployment Change (Oct)
Unemployment Rate (Oct)
Unemployment Rate AKU (Aug)
Retail Sales W/Auto Fuel (Sep)
Business Climate Indicator (Oct)
Economic Confidence (Oct)
Industrial Confidence (Oct)
Consumer Confidence (Oct F)
Services Confidence (Oct)
ECB's Costa Speaks
MBA Mortgage Applications (Oct-25)
ADP Employment Change (Oct)
CPI (Sep)
CPI (Sep)
CPI Ex Food & Energy (Sep)
CPI Ex Food & Energy (Sep)
CPI (Oct P)
CPI (Oct P)
CPI EU Harmonised (Oct P)
CPI EU Harmonised (Oct P)
FOMC Rate Decision
Fed Pace of MBS Purchases (Oct)
Fed Pace of Treasury Purchases (Oct)
ECB's Weidmann speaks
ECB's Asmussen Speaks
RBNZ Official Cash Rate
Building Permits (Sep)

Frequency

UBS

Prev/Revised

Consensus

Actual

m-o-m
y-o-y
m-o-m
y-o-y
index
index

n/a
n/a
n/a
n/a
n/a
1.60

-0.90%
-0.40%
3.40%
-7.60%
1.32
1.53

1.80%
5.50%
n/a
n/a
n/a
1.60

1.50%
5.40%
6.40%
13.00%

y-o-y
lvl
%
%
m-o-m
index
index
index
index
index

1.50%
15K
6.90%
3.50%
n/a
n/a
n/a
n/a
n/a
n/a

1.60%
25K
6.90%
3.60%
0.20%
-0.20
96.9
-6.7
-14.5
-3.3

n/a
0K
6.90%
3.60%
0.50%
-0.19
97.2
-6.5
-14.5
-2.8

m-o-m
lvl
m-o-m
y-o-y
m-o-m
y-o-y
m-o-m
y-o-y
m-o-m
y-o-y
Oct
USD bn
USD bn

n/a
n/a
0.20%
1.20%
0.20%
1.80%
n/a
n/a
n/a
n/a
0.25%
n/a
n/a

-0.60%
166K
0.10%
1.50%
0.10%
1.80%
0.00%
1.40%
0.00%
1.60%
0.25%
40
45

n/a
150K
0.20%
1.20%
0.20%
1.80%
0.00%
1.40%
0.00%
1.50%
0.25%
40
45

Oct
m-o-m

2.50%
n/a

2.50%
1.40%

2.50%
n/a

Source: UBS Global Economics, Bloomberg LP, Reuters LP, Reuters, Market News International

UBS 3


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