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ab

Fixed Income & FX Research
FX - Strategy

UBS Investment Research
FX Morning Adviser

Global

NZD Hinges On Wheeler

9 December 2013
www.ubs.com/fx

The recent resilience of the New Zealand dollar owes much to the prospect of
several RBNZ rate hikes next year. The question now is whether Thursday’s
quarterly Monetary Policy Statement will endorse current market pricing, or
whether Governor Wheeler will suggest there is room for patience.
The case for rate hikes seems watertight. The domestic property market is still
booming despite the introduction of property cooling measures. UBS
Economics looks for an RBNZ rate hike in Mar 2014, followed by a sequence
of quick-fire hikes that would take the OCR up to 4.0% by end-2014.
Having said that, the New Zealand dollar’s recent spurt higher will not have
gone unnoticed within policymaker circles. AUDNZD slipped below 1.10 last
week for the first time in 5 years, and Australia remains the country’s biggest
trading partner (with China a close second).
The NZD TWI is a key input into RBNZ policy decisions and, although AUD
is not the biggest component of the basket, it still casts a lengthy shadow
(Chart 1). At the time of writing, the TWI stands at 77.90 − over three big
figures higher than where the RBNZ forecast it would be by now.
We’ve already been warned about the potential policy implications. At the last
policy assessment on Oct 31 Gov. Wheeler noted that “Sustained strength in
the exchange rate that leads to lower inflationary pressure would provide the
Bank with greater flexibility as to the timing and magnitude” of future rate
hikes. The TWI is now 1.8 % stronger since that comment was made.
Whether Gov Wheeler strengthens that language on Thursday is an open
question. What is clear though is that if the RBNZ is growing hesitant, the
policy guidance framework has enough resolution to reveal this. All it would
take is a slight adjustment to the track of the 90-day bank bill rate seen in Chart
2 (a proxy for the policy rate plus a small spread). With the OIS market already
fully pricing in 25bp of tightening at the March 13th policy decision, any
communicated delay is likely to injure the New Zealand dollar – at least
temporarily. We remain structurally bearish on AUDNZD longer term though.
Chart 1: USD the main component. AUD only in third place.

Chart 2: Policy rate guidance will be key
90-Day Bill Rate (RBNZ forecasts)

NZD TWI Components

USD
30%

4.5
4.0

Jun MPS

Sept MPS

actual

%

JPY
15%

5.0

GBP
6%

3.5
3.0

AUD
22%

Source: RBNZ, UBS FX Strategy

This report has been prepared by UBS

2.5
EUR
27%

2.0
Mar-12

Mar-13

Source: RBNZ, UBS FX Strategy

Mar-14

Mar-15

Mar-16

FX Morning Adviser 9 December 2013

FX Technicals
EURUSD

BULLISH

The pair extended its strength, and there is not major resistance until 1.3833. A
close above which would be an important bullish event. Support is at 1.3621.

USDJPY

BULLISH

As bullish conditions persist, there’s scope for further upside in the near-term to
test the resistance at 103.74 and then 105.75. Support is at 101.18.

GBPUSD

BULLISH

With the MACD above its zero line, any downside will be corrective and limited to
support at 1.6288. Resistance is at 1.6443, a break above which would open
1.6618.

USDCHF

NEUTRAL

The latest weakness suggests scope for extension of the weakness, with major
support range at 0.8891/64. Resistance is at 0.8984.

AUDUSD

BEARISH

With the MACD below its zero line, there’s potential for more downside over the
coming days. Support is at 0.8893. Resistance is at 0.9168.

USDCAD

BULLISH

Any downside will be corrective and limited to support at 1.0596. Resistance is at
1.0708, a break above which would open 1.0804.

EURCHF

BEARISH

Further selling on Friday saw the test of the critical support at 1.2215. A close
below which would be an outright bearish development, triggering a sell-off to
1.2130. Resistance is at 1.2274.

EURGBP

BEARISH

The latest recovery does not change the bearish trend. Look for rejections from
higher resistance levels at 0.8419 and 0.8458. Support is at 0.8348 ahead of
0.8253.

EURJPY

BULLISH

The bullish development on Friday was close above the significant resistance at
140.99. This suggests further acceleration to resistance at 142.63 and even
further to 150.00. Support is at 138.43.

*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 9 December 2013

Key Events
Country

China
New Zealand
Japan
Japan
Japan
Japan
Japan
Australia
China
China
Japan
Japan
Switzerland
Germany
Switzerland
Euro Area
Euro Area
Germany
Germany
Canada
Euro Area
UK
United States
United States
United States

GMT

03:01
21:45
23:50
23:50
23:50
23:50
23:50
00:30
01:30
01:30
05:00
05:00
06:45
07:00
08:15
08:15
09:30
11:00
11:00
13:15
14:00
17:15
17:30
18:05
19:15

Release/Event

Trade Balance (Nov)
Mfg. Activity sa (Q3)
BoP Current Account Adjusted (Oct)
GDP sa (Q3 F)
GDP Annualized sa (Q3 F)
GDP Nominal sa (Q3 F)
GDP Deflator (Q3 F)
ANZ Job Advertisements (Nov)
CPI (Nov)
PPI (Nov)
Eco Watchers Survey Current (Nov)
Eco Watchers Survey Outlook (Nov)
Unemployment Rate sa (Nov)
Trade Balance (Oct)
Retail Sales Real (Oct)
ECB's Mersch Speaks
Sentix Investor Confidence (Dec)
Industrial Production sa (Oct)
Industrial Production wda (Oct)
Housing Starts (Nov)
Euro-Area Finance Ministers Meet
BOE's Carney Speaks
Fed's Lacker Speaks
Fed's Bullard Speaks
Fed's Fisher Speaks

Frequency

UBS

Prev/Revised

Consensus

Actual

USD bn
q-o-q
JPY bn
q-o-q
q-o-q
q-o-q
y-o-y
m-o-m
y-o-y
y-o-y
index
index
%
EUR bn
y-o-y

n/a
n/a
n/a
0.30%
1.50%
0.40%
-0.30%
n/a
3.10%
-1.40%
n/a
n/a
3.10%
18.0
n/a

31.11
-1.20%
-125.2
0.50%
1.90%
0.40%
-0.30%
-0.10%
3.20%
-1.50%
51.8
54.5
3.20%
20.4
1.00%

21.50
n/a
120.7
0.40%
1.60%
0.40%
-0.30%
n/a
3.10%
-1.50%
n/a
n/a
3.20%
18.3
n/a

33.80
4.70%
-59.3
0.30%
1.10%
0.30%
-0.30%
-0.80%
3.00%
-1.40%

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

n/a
0.30%
n/a
n/a

9.3
-0.90%
1.00%
198.3K

10.2
0.80%
3.30%
195.0K

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

UBS 3


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