Tuesday 22nd November 2011
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CURRENCY: Little relief likely for the NZD as it approaches the next technical level of support (0.7437) and looks to travel lower. Offshore focus remains clearly on the upcoming NZ general election and possible outcomes.
RATES: Quiet night with no kiwi trades. NZ rates are likely to open broadly unchanged.
CURRENCY: No surprises were delivered on the NZD front over the past 24 trading hours as it tracked lower. While key technical support has not yet broken, the NZD is travelling extremely close in early morning trading.
GLOBAL MARKETS: Another Groundhog session overnight in Europe, with risk selling off on European debt concerns and the almost certain failure of the US super committee to agree to a deficit reduction programme in time for the November 23 deadline. European equities were down around 3%, with US equities 2.3% lower. US government bond yields fell with the 10-year yields below 2%, with UK and German yields also down around 5bp. Movements in government bond yields were relatively limited for Eurozone peripherals. The CRB commodity price index fell 1.1%, with oil prices down by a similar magnitude. Gold and silver prices fell by more.
KEY THEMES AND VIEWS
US CREDIT RATINGS DOWNGRADE LOOMING? US politicians are showing they have learnt very little from the debt ceiling debacle a few months ago. With the November 23 deadline looming, the US super committee is widely expected to announce failure to agree on deficit reduction plans of at least $1.2tr. This will trigger across the board cuts of the same amount starting in 2013. The spending cuts fall on defence and will have a disproportionate impact on discretionary programs, including education, the environment, transportation, and housing assistance. Despite not ruling out a last minute compromise, parties from both sides of the political spectrum have been quick to blame each other. Tax and spending issues will become a centrepiece of next year’s presidential and congressional elections, with voters unlikely to view both parties kindly after they have managed to fritter away much of the US’s hard won credibility and economic leadership. The rating agencies have also warned of further ratings downgrades if US authorities attempt to work around the deficit reduction plans.
OTHER EVENTS AND QUOTES
• Spanish People’s Party wins landslide victory. The pro-business Peoples’ Party won the biggest parliamentary majority of any government in almost 30 years, gaining 186 seats in the 350 seat house. They have the mandate, will the hard decisions follow?
• Moody’s – the rise in interest rates on French government debt and weaker growth prospects could be negative for the outlook on France’s credit rating.
• Detailed European Commission plans on how European commission countries can borrow money with European backing are due to be released on Wednesday (European time). Not everyone is in favour: “The chancellor and the federal government do not share the belief of many that euro bonds would now be a kind panacea for the crisis” according to Merkel’s spokesman Steffen Seibert.
NZDUSD: Dark side…
Many will look to the current level of the NZD as an opportunity to scale back some profitable positions. Most however will remain in waiting mode to see if a break of key technical levels can deliver a further extension lower. Local data should do nothing to avoid the increasing uncertainty on the electoral front and ensure that topside attempts remain capped.
Expected range: 0.7437 – 0.7497
NZDAUD: Remaining contained…
NZD weakness has played out to the AUD side of this cross as risk concerns globally lift. This cross should continue to find NZD sellers above 0.76AUD.
Expected range: 0.7518 – 0.7608
NZDEUR: On track…
With little new on the European front the NZD led the way lower for this cross. EUR weakness was not enough to counter the moves of the NZD that have kept this cross on track for a test of 0.5510 sooner rather than later.
Expected range: 0.5510 – 0.5615
No surprises either on this cross as it pushes towards the next level of buying interest in the low 57JPY area. At this point the Bank of Japan remains absent from the market as the USDJPY is little changed from recent levels.
Expected range: 57.17 – 57.97
NZDGBP: Not quite there yet…
And again here we have the NZD doing the directional bias although concerns around Europe have done little to assist the GBP overnight.
Expected range: 0.4754 – 0.4799
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