Thursday 17th November 2011
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CURRENCY: Some respite in store today for the NZD as many look to bank profits from recent moves against the USD. It will however remain weak against the AUD as yields in both countries continue to tumble.
RATES: View quiet trading in the kiwi overnight, although more bidding interest was noted. We expect local rates to open this morning unchanged.
CURRENCY: Another night where the NZD dropped further only to be rescued by a minor reversal of fortunes for the EUR. Support in the low 0.76USD zone is evident and should be avoided today.
GLOBAL MARKETS: An up and down session overnight in European markets, with improving risk appetite at both ends of the session. US equities were down slightly. The Euro Stoxx 50 gained around 0.5%, with offsetting movements. Soft US inflation numbers pushed Treasury yields lower. Higher German and French bond yields contrasted with lower Italian and peripheral Eurozone yields. Commodity prices tracked sideways, with offsetting movements. Oil prices rose.
KEY THEMES AND VIEWS
MARKET’S WARY OF MIXED MESSAGES. Last night it was German Chancellor Merkel’s turn. She initially noted Germany is ready to cede some sovereignty to strengthen the euro area and restore confidence in the common currency. Moreover, EU treaty changes to strengthen EU institutions and patrol tighter budget rules were needed “to make the euro zone more crisis-proof”. Proposed changes would mean an intervention and oversight role in respect of the preparation of national budgets, but flexibility for certain countries to execute their own budgetary strategy. Ceding nationwide sovereignty to a bunch of unelected technocrats has some far reaching implications, and Merkel quickly back pedalled to reiterate she envisaged only limited EU Treasury changes, ruling out the issuance of joint euro-area bonds and a limited role for the ECB.
UK INFLATION REPORT DELIVERS FEW SURPRISES. Both growth and inflation forecasts were downgraded, and Governor King gave a dovish outlook at the following press conference. Based on its ₤275bn bond programme remaining unchanged, UK inflation is more likely to be below the bank’s 2% target, than above it in two years’ time. Failure to resolve the European debt situation could lead to “significant adverse effects” on the global economy.
OTHER EVENTS AND QUOTES
• US headline CPI past its peak? Annual core inflation rose to a three-year of high of 2.1%, the three month annualised growth rate of core prices dropped to 1.8% in October, down from the peak of 3.1% in July. QE3 looks a long way off, barring meltdown in Europe and the failure of the stubbornly high US unemployment rate to fall.
• Greek PM Papademos wins confidence vote 255-38. He now has a three-month mandate to implement budget measures and ensure a bailout of €130bn agreed to with euro partners on Oct. 26.
• Mario Monti has formed a new Italian Government, and will hold the roles of both prime minister, and finance minister.
NZDUSD: Finding some support…
Support in the low 0.76USD zone should be enough today to halt further falls. Minor local economic data, in the form of Q3 PPI, is unlikely to have much impact on the moves of the NZD as it again looks to offshore antics to find direction. A squeeze back above 0.77USD should not be a surprise.
Expected range: 0.7650 – 0.7727
NZDAUD: Under the pump…
This cross continues to remain close to a key monthly level (0.7583) as yields in both countries tumble. Expect further selling pressure on the NZD to deliver exploration of lower levels albeit reluctantly given the extent to which lower interest rates are priced into the Australian market.
Expected range: 0.7545 – 0.7605
NZDEUR: Threes company…
Disagreements between Germany and France around the extent of ECB involvement in solving the current crisis while Italy sits in the sinbin will not help the EUR overall. However market positioning has meant this cross continues to ease and flirt further with support at 0.5665.
Expected range: 0.5650 – 0.5700
NZDJPY: No change…
Nothing new from the Bank of Japan meeting yesterday despite plenty of speculation that intervention was the likely outcome. Perhaps a day of reflection before such activity takes place. This cross should find further support on any dips into the low/mid 58JPY area.
Expected range: 58.80 – 59.70
NZDGBP: UK concerns…
The Bank of England quarterly inflation report delivered the prospect of further QE and ensured that the GBP weakened as a result. This cross will remain supported in the near term off the back of that news.
Expected range: 0.4850 – 0.4900
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