Monday 29th August 2011
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CURRENCY: A lack of local data will see the NZD look for offshore direction today. Topside attempts are like to be on the cards as the US economic picture remains poor with little by way of answers from regulators.
RATES: NZ rates should open broadly unchanged after a quiet London session. US Treasury bond yields are slightly lower again, giving some downside bias.
CURRENCY: US Federal Reserve Chairman Bernanke’s Jackson Hole speech was a fizzer, delivering only an extended FOMC meeting for September. USD weakness resulted and assisted in lifting the NZD close to resistance levels.
GLOBAL MARKETS: Markets were, on the whole, disappointed with the Jackson Hole speech by Fed Chairman Ben Bernanke, as it failed to indicate any more unconventional policy stimulus. However, initial risk-off moves were trimmed as the market either partly bought his story that things aren’t so bad, or perhaps more likely, concluded that the extra day of deliberations scheduled for next month means QE3 remains on the table. US equities ended in the black, but Treasury yields were down. Oil prices were flat, while gold eased again.
KEY THEMES AND VIEWS
IT’S NOT SO BAD, according to Federal Reserve Chairman Ben Bernanke. In his speech from Jackson Hole on Saturday he announced that the US economic situation was not bad enough to warrant further action at this point. “Although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years. It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals.” We had already concluded that a further round of quantitative easing on the part of the Fed was unlikely to be announced at this point; we were much less certain on how the markets would take whatever Bernanke had to say.
Markets were initially disappointed at the lack of new stimulus measures, with the S&P500 down 2 percent, 10-year Treasury yields down 11 points and the US dollar 0.3 percent higher. But on reflection markets decided QE wasn’t totally off the table, given that Bernanke has scheduled an extra day of policy deliberations next month. Risk-off moves were at least partly reversed. There is certainly no shortage of diverse opinions round the table regarding QE. However, we’d highlight the possibility that Bernanke is interested in thrashing out an inflation target, rather than being keen on QE3. An explicit inflation target (say 3-4 percent) would be aimed at supporting inflation expectations and heading off a Japan-style deflation scenario (and on the other side, reassuring those who are concerned that QE1 and 2 will lead to supersized inflation). A cynic could also suggest that the announcement was simply designed to keep QE hopes alive and prevent a market rout. In any case, the Fed will be relieved to have gotten through such a keenly anticipated speech without committing themselves to anything at all and yet not sending a nervous market into a dive.
OTHER EVENTS AND QUOTES
• US GDP expanded 1.0 percent annualized in Q2 (preliminary estimate), slightly lower than median market expectations.
• Damage to NY from Hurricane Irene was far less than earlier feared.
• ECB President Jean Claude Trichet’s Jackson Hole speech steered clear of the current situation except to say that price stability is not under threat.
NZDUSD: Stepping up…
Ultimately expect higher levels for the NZD as it remains the currency of calm amongst a market of mayhem. It continues to be a “buy the dip’ scenario for many involved in the currency, although today’s resistance level of 0.8424 may not be taken out just yet.
Expected range: 0.8369 – 0.8424
NZDAUD: Coming back…
A stronger second half performance demonstrates potential for this cross. While it should not take out resistance at 0.7965 today, a test will be on the cards later this week.
Expected range: 0.7902 – 0.7971
NZDEUR: Point of difference…
A weaker USD managed to provide some strength to the EUR but it was not enough to counter the moves of the NZD. Resistance at 0.5825 remained in place and provides a barrier at this point.
Expected range: 0.5755 – 0.5825
NZDJPY: Yielding returns…
A nudge closer to the resistance level of 64.58 has taken place with very little retracement. Expect this level to remain in place today although a break should occur later this week.
Expected range: 63.85 – 64.58
NZDGBP: Growing up…
Further moves higher by this cross are possible as the UK market remains on holiday for a long weekend. Expect a more difficult road, however, if the cross nears 0.52GBP.
Expected range: 0.5105 – 0.5155
Source: ANZ Research
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