A review of things you need to know before you go home Friday; dairy prices up, more reinsurance cover, service exports targeted, DTI exemption wanted, swaps flat, NZD up

Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
Nothing to report today.

DEPOSIT RATE CHANGES
No changes here either. But for an update of where things stand, see this.

ON THE WAY UP
The latest dairy price monitoring by the USDA is showing some interesting divergences. Oceania WMP prices are now well below those for Europe and South America – our product has a US$200 price advantage (meaning it is about US$200/tonne cheaper), it seems. We have similar, although slightly smaller advantages in SMP and butter too. But our butter prices are catching up fast – they are US$450 higher in the past fortnight. These changes may help explain why our dairy companies are more comfortable signaling higher farmgate milk prices.

MORE COVER
IAG Group has bought another AU$1 bln of catastrophe reinsurance to add to the AU$7 bln of reinsurance it buys every calendar year. An IAG spokesperson confirms the purchase isn’t related to the Canterbury earthquakes. Rather its CFO says: “We are always looking for ways to strengthen our reinsurance protection in a cost effective manner, and this purchase meets those requirements. It significantly extends the upper end of our gross protection.” IAG New Zealand in November bought another NZ$900 mln expensive reinsurance for its quake risks.

EXPORT TARGET: SERVICES
A new consultative group has been set up to help promote services exports. Services account for 70% of our GDP, 80% of our jobs and 31% of our current exports, amounting to NZ$21.6 bln and almost a third of total exports. Huge global growth opportunities for services exports and the digital economy have been identified and this new group is part of a coordinated effort to go after them.

A KEY DTI POSITION
The NZ Labour Party today came out against debt-to-income limits being applied to first home buyers. That seems a slightly odd position for them, to want to allow first home buyers to take on debt at levels that regulators know is probably very high-risk.

THE CLAMPS ARE ON
In Australia, lending levels are in decline. For housing finance, they are down -1.6% in April from the same month a year ago, and for the bit related to lending for investors, that is down -2.3%. The raw numbers show much steeper declines, but we are reporting seasonally adjusted data here to account for the different way Easter occurred between the two years. Personal lending and commercial finance are also in decline, and at an even greater rate.

HITTING INVESTORS, ESPEC WITH INTEREST-ONLY LOANS
And staying in Australia, ANZ changed some home loan rates today, increasing its interest-only loans by +0.30% which decreasing its P&I loans by -0.05%. That positions them with a lower rate that any of their three main rivals for owner-occupiers on P&I terms, but equal to higher than them in all other cases. Today’s action is not likely to ‘help’ lending levels.

PRICES HIGHER
In China, inflation data out today confirms analysts expectations of higher levels of consumer price inflation, which are now back up to +1.5%. If it wasn’t for fast-declining food prices, the levels would have been well over 2%. Producer prices are rising faster, but that rate of increase continues to moderate.

‘HOUSE PRICES TO HALVE’
House prices in Hong Kong are the world’s priciest. But they may not stay like that for long. They could fall by nearly half over the next 10 years as a rapidly ageing population coupled with rising supply of new flats will dent demand, according to a report by Deutsche Bank. The key driver of the trend? over-building. Hong Kong will join Christchurch to show that supply is the key factor in getting affordability realigned. Vancouver and Toronto are the exemplars of why trying to curb demand doesn’t work.

WHOLESALE RATE CURVE FLATTENS
There are few changes today.. The 2-4 year terms are up +1 bp, and the 10yr is down -1 bp. The 90 day bank bill rate is unchanged at 1.94%.

NZ DOLLAR RISES AGAIN
NZD is up slightly from this time yesterday at 72.2 USc. On the cross rates, against the Aussie we are at 95.7 AUc, and we are at 64.5 euro cents. The TWI-5 is now at 76.4, pushed up marginally by the pounding the British currency is getting following their messy election. The NZD-GBP has little impact on our economy these days it now just a cultural curiosity. And bitcoin is up +4.6% on the day, now at US$2,850. Remember it hit US$2,957 three days ago, slipped, but is on the way back up again.

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