Economic views and news - Thursday, 29 September

ANZ Research

Thursday 29th September 2011

OUTLOOK

CURRENCY: A calmer day on currency markets is possible today while we await further developments on the Greek front. Support levels are again likely to be in question as recent momentum failed to break key technical levels.

RATES: With some payside interest during the London session overnight, NZ swap yields are likely to open a couple of points higher this morning. A lack of local economic data mean offshore events will continue to dominate, but with the bank financial year end tomorrow, liquidity will be thinner than usual.

REVIEW

CURRENCY: The failure of the NZD to get back above the 200 day moving average ensured it reversed the corrective move overnight. It eased lower probing support levels against most crosses.

GLOBAL MARKETS: Equities gave back some of the previous day’s rally, with European bourses down 0.8% and US bourses lower by 1% at the time of writing. Despite weaker equities, US Treasury prices fell further, although a strong auction of 5-year notes saw prices recover later in the session.

Commodities fell, with oil prices down to near US$82/bbl, while gold seems to have well and truly lost its shine, falling towards US$1,600/oz. In currency markets, the yen was the only major currency to gain against the greenback, with the antipodean currencies at the bottom of the rung.

KEY THEMES AND VIEWS
OFF, ON, OFF, ON... At times, it is a real struggle to make sense of the daily market moves. The big risk rally that occurred in the previous session failed to kick on overnight, and we saw a bit of a pullback in risk appetite. Quite why this was the case, who really knows.

The economic data out of the US was actually decent, with core durable goods orders well above expectations at +1.1%, the strongest result in three months. But markets seemed to have ignored it.

German inflation came in stronger than expected, and that won’t be welcomed by those hoping for ECB rate cuts next week. We had the EU proposing a financial transactions tax for the region, but the smart money is on it not going ahead given that Britain is not in favour unless there is a global tax. And we know what the odds of that occurring are.

The Troika are heading back to Greece to nut out the final details for further aid, but it is a given that the bailout money will be approved. Would the Troika want to be blamed for forcing Greece to default, unleashing a crisis that would have global ramifications? I think not.

So with no new information once again to make us any the wiser, markets continue to wax and wane. Strong rallies are followed by a pullback. This kind of price action is frustrating, but is not unexpected as markets continue to wait for further news about how policymakers intend to resolve the debt crisis.

OTHER EVENTS AND QUOTES
• European Commission President Jose Manuel Barroso: “We trust that the European Central Bank – in full respect of the (EU) treaty – will do whatever is necessary to ensure the integrity of the euro area and to ensure its financial stability.”
• The EU is proposing a financial transactions tax from January 2014 that would raise €57bn a year. Stock and bond trades would be taxed a 0.1%, with derivatives taxed at 0.01%. All EU states will need to approve the plan, with Britain already stating it will only support it if it was implemented globally.

NZDUSD: Injury break…
Having spent the last couple of days whipping around, the NZD looks set for an injury break today. While medical attention may not be required, a spell off the field is highly likely. Expect support around 0.7771 to be questioned at some point in the coming trading day.
Expected range: 0.7771 – 0.7868

NZDAUD: Sideline spell…
This cross continues to suffer from a lack of local economic releases and today should be no different.

It should remain within the 0.79AUD zone today as the proximity to the RBA cash rate decision shrinks.
Expected range: 0.7902 – 0.7952

NZDEUR: Running repairs…
Another tough time is likely for this cross having failed to consolidate above 0.58EUR.

Today it will remain within the 0.57EUR zone as the weekend approaches and the possibility of a decision around Greece increases.
Expected range: 0.5715 – 0.5765

NZDJPY: Stretching it out…
Another move back sub 60JPY for this cross has demand increasing. Expect this cross to flirt around this level today as the USDJPY remains stationary and unlikely to contribute to any directional bias.
Expected range: 59.30 – 60.00

NZDGBP: On the table…
A steadier GBP should limit topside moves for this cross. Tonight’s UK August unemployment data is unlikely to change the landscape which still includes the very real possibility of more QE.
Expected range: 0.4972 – 0.5022

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