Tuesday 16th August 2011
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CURRENCY: Today the NZD will find itself in recovery mode after being frozen out of the moves of the EUR and AUD overnight. Expect support around 0.8280 to go untested with the most likely path towards the 0.8355 resistance level.
RATES: Another quiet session for the NZ rates market during London trade overnight. As a result, yields and the curve are expected to open largely unchanged this morning.
CURRENCY: A positive start to the week for the NZD until the European session. The NZD was sold against most currencies and continued throughout the North American session to lag behind the moves of the EUR and AUD.
GLOBAL MARKETS: Equities continue to recover from their earlier beating, with the Euro Stoxx 50 up 0.7% and the S&P500 gaining 1.8% at the time of writing. The weak Empire Manufacturing survey was ignored, as news of corporate activity saw bargain hunters emerge to snap up what some see as oversold stocks.
US bond yields largely traded sideways within a relatively tight range (relative to the moves seen in the past couple of weeks).
The USD has resumed its slide, helping commodity prices higher. Oil rose above US$87/bbl, with gold also higher.
KEY THEMES AND VIEWS
IS THE WORST OVER? Risk assets were off to a good start this week, with global bourses up strongly. There certainly wasn’t anything in the economic dataflow that triggered the rally. There was a paucity of data to begin with, and what was released wasn’t exactly that positive, with the Empire Manufacturing survey showing a surprise decline. A couple of months ago, a weak Empire Manufacturing print sent markets lower. Last night, investors didn’t really care much about it. A sign perhaps, that markets had already factored in so much bad news that it will take really negative news to drive another leg lower. You could even say that yesterday’s better than expected Japanese Q2 GDP print (-0.3% actual vs -0.6% expected) started the risk on rally. How long the rally can carry on for remains to be seen. The economic data will most likely be soft for a while, but this has already largely been discounted by the market. But sentiment is still fragile and it may not take much to see another bout of selling. After all, the European debt crisis is still far from resolved.
All eyes will be on the German and French summit tomorrow in Paris. These two countries are the only ones that can resolve the debt crisis once and for all, but it will require both countries to stump up with much more cash, something that is politically unpalatable. Already, the issue of Eurobonds has been ruled out, so the summit may not amount to much in the end.
In currency markets, the USD has resumed its slide against most of the major currencies, bar the safe haven ones (JPY and CHF). With Japanese policymakers still threatening intervention to prevent further yen appreciation, and the SNB reportedly in discussion with the Swiss government over a possible target for the Swiss franc, we are likely to see the other major currencies bear more of the brunt of a weaker USD.
OTHER EVENTS AND QUOTES
• The latest US Fed Senior Loan Officer Survey reported a loosening in credit standards due to intense competition, noting that “The July survey indicated that, on net, banks continued to ease lending standards and most terms on all major types of loans other than loans secured by real estate over the past three months.”
The inability of the NZD to get back into the 0.84USD territory after staring the week positively will ensure continued underperformance. Expect today’s trials and tribulations to be around getting above the 0.8355 level which might prove a tough ask. Support around the high 0.8280USD area should hold.
Expected range: 0.8280 – 0.8355
NZDAUD: Over the top…
Realisation that the Australian market has pricing wrong on RBA cash rate moves, most likely confirmed today after the release of the RBA meeting minutes, had many selling the NZD against the AUD. This was enough to reverse recent gains and look towards downside support at 0.7900.
Expected range: 0.7900 – 0.7960
NZDEUR: In descent mode…
A lift in the fortunes of the EUR, perhaps more correctly a slump on the USD front, has helped this cross ease back. It should hold in the 0.57EUR territory today with little chance of seeing 0.58EUR levels.
Expected range: 0.5725 – 0.5785
NZDJPY: Big wall…
This cross found itself unable to pass the 64.58 resistance level yesterday and subsequently reversed. At this point support remains in the low 63JPY area with another look at resistance likely.
Expected range: 63.20 – 64.58
A slip on loose ground for this cross despite poorer UK housing data yesterday. Expect support in the low 0.50GBP area in the near term.
Expected range: 0.5060 – 0.5120
Source: ANZ Research
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