Economic views and news - Monday, 19 September

ANZ Research

Monday 19th September 2011

OUTLOOK

CURRENCY: Getting past the advantage line (0.8343) is unlikely today. Support may well be as close at hand as the previous resistance line at 0.8281 and be tested early as markets reflect on offshore developments.

RATES: The London session was quiet and NZ rates are likely to open unchanged.

REVIEW

CURRENCY: As expected, support at 0.8205 held during the last local session of the week. It took offshore to take things higher through resistance at 0.8280 but the extension higher failed to take out technical resistance.

GLOBAL MARKETS: A quieter day for markets, but with a downbeat tone on a lack of good news to offset some negative headlines. Equities were mixed, oil fell a touch, and gold held up. US Treasury long-term yields fell slightly, and remain at levels where even a modest tick-up in trend inflation could all but wipe out 30-year investors in real terms. This “safe haven” may eventually prove to have some serious chinks in its armour. Meanwhile, commodities such as food have yet to take a serious knock from the recent turmoil, but investors continue to curtail their bets on the sector, indicating it is not expected to be immune.

KEY THEMES AND VIEWS

NO MIRACLE FOR EUROPE OVER THE WEEKEND. Friday brought more downbeat headlines, announcing future Greek protest strikes, and news that private sector participation in the Greek restructure was around 75 percent versus 90 percent required. The meeting of finance ministers plus the US Treasury Secretary Tim Geithner failed to produce much more than polite disagreement. European leaders remain firmly against fiscal stimulus due to debt concerns, despite Geithner’s gentle encouragement. German officials also reacted coolly to his suggestion to use the ECB to boost the firepower of the rescue fund via leveraging, with Bundesbank President Jens Weidmann commenting, “The EFSF’s sole purpose is the financing of states and that’s in order as long as it’s done via the capital market. If it’s done via the central bank it constitutes monetary state financing,” forbidden under EU rules. Some of the comments sounded decidedly snippy, with the chair of the meeting, Luxembourg PM Jean-Claude Juncker, saying “We’re not discussing the increase or the expansion of the EFSF with a non-member of the euro area,” and Austrian Finance Minister Maria Fekter finding it “peculiar” to be lectured to on fiscal policy by a country with higher aggregate debt than the Euro area. Only 5 of 21 countries have so far ratified the 21 July changes to the EFSF. There’s still time, but any one country can effectively veto it. There is a chance Moody’s may downgrade Italy today, but if they do, it would bring them more into line with Fitch and S&P’s ratings rather than necessarily signalling a new bout of downgrades is imminent.

OTHER EVENTS AND QUOTES
•       US University of Michigan Consumer Confidence rose from 55.7 to 57.8, beating expectations. One and five-year inflation expectations also stepped up to 3.7 and 3 percent respectively (from 3.5 and 2.9 percent).
•       UBS lifts estimate of loss due to rogue trader to US$2.3bn.
•       “I found it peculiar that even though the Americans have significantly worse fundamental data than the Eurozone, that they tell us what we should do,” Austrian Finance Minister Maria Fekter doesn’t pull her punches.

NZDUSD: Making good progress…
On the day the NZD should find itself looking for offshore direction as the European finance ministers’ meeting in Poland failed to see any country forced to walk the plank. It may well spend the local session within a narrow range waiting on the Asian market assessment of developments.
Expected range: 0.8281 – 0.8343

NZDAUD: Not only Irish eyes smiling…
Moves above 0.80AUD on this cross have managed to provide further opportunities for local importers. The release of the RBA September meeting minutes and plenty of RBA speak this week may deliver further topside moves.
Expected range: 0.7950 – 0.8050

NZDEUR: No news is definitely not good news…
Nothing of note from the European finance ministers’ meeting over the weekend. A further loss to German Chancellor Merkel in the Berlin elections may weaken the EUR first off. Resistance remains at 0.6038 at this point.
Expected range: 0.5988 – 0.6038

NZDJPY: Taking a break…
The Japanese market is on holiday today and this should leave this cross with little desire to move outside recent ranges.
Expected range: 63.14 – 64.07

NZDGBP: Resistance line broken…
Another poor relative performance for the GBP as the topside hourly resistance line gave way. Expect further topside attempts coming after the release of the BoE meeting minutes later this week.
Expected range: 0.5220 – 0.5275

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