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Economic views and news - Wednesday, 14 December

ANZ Research

Wednesday 14th December 2011

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CURRENCY: Little chance of a lift in the NZD while the EUR remains under pressure. Support levels for the NZD still remain under threat as the EUR approaches another key level against the USD (1.30EUR).

RATES: Very quiet trading overnight in London. While this morning’s FOMC statement will be could provide direction, local rates expected to open broadly unchanged.


CURRENCY: The NZD found itself unable to break out of the 0.76USD handle despite an increase in the forecast 2012 dairy payout. EUR weakness, against all currencies, continued to deliver contagion concerns.

GLOBAL MARKETS: Initial selling pressure due to potential credit downgrades for Italy, Spain and France was followed by a late rally, attributed to a successful Spanish debt auction (€4.94bn of 12 and 18-month bills sold at 4.23%) and the successful entrance of the EFSF into the t-bill market.

The Euro Stoxx 50 fell 0.4%, while the FTSE100 gained 1.2%, with US equities up 0.5% at the time of writing. Government bond yields edged higher in the US, UK, and Germany, but the Italian 10-year yield rose to 6.63%. Despite the stronger USD, commodity prices rose 0.9% on the CRB index, with oil prices up 2.1%. Gold fell 0.4%.


AWAITING THE FOMC. This morning the attention of markets will be redirected to the US. An improving tone to US data is expected to encourage a more upbeat assessment, but it will be interesting to note how the fed are viewing the worsening situation in Europe.

Most analysts expect the fed will revise their August pledge to hold interest rates near zero through mid-2013 by June 2012, with the January 25-26 meeting the most likely date. It is also likely that after the January meeting the committee will unveil a “broader overhaul” of their strategy for communicating with the public about policy, including the path of interest rates.

What this means for September 22’s Operation Twist, where the fed bought $400bn of longer-term government securities and sold $400bn on of short-term debt to lengthen the average maturity of securities on its balance sheet, remains to be seen. While US 10-year Treasury yields are now above their September record low of 1.72%, mortgage interest rates remain near record lows.

•      Selling the family silver. The unintended consequence of the decision by European regulators to make banks increase core capital to 9 percent by June 2012 instead of 2019, has contributed to European banks (Banco Santander SA, KBC Groep NV and Deutsche Bank AG) accelerating plans to exit profitable operations outside their home markets.
•      EU’s Van Rompuy: The ECB isn’t a “solidarity instrument” but a stability instrument. Europe hasn’t recovered from damage to international confidence that resulted from delays to enacting July euro-summit accord.
•      The November increase in US retail sales fell short of expectations. The growing popularity of Black Friday deals supported large rises for electronics (+2.1% m/m), internet sales (+1.5%) and clothing (+0.5%). But sales activity in other areas was much weaker.

NZDUSD: Reflecting…
Moves of the NZD will continue to be governed by those of the EUR. At this stage a move below 0.7600USD is highly likely as the EUR remains under intense scrutiny. An extension lower to the next level of support at 0.7577 would see buying interests revealed.
Expected range: 0.7577 – 0.7677

NZDAUD: Bias lower…
No change to the directional bias for this cross. Support levels should continue to be investigated albeit tentatively at this stage.
Expected range: 0.7550 – 0.7600

NZDEUR: Waiting…
Some within the Eurozone will be happy with a weaker EUR which will assist with exports. Others however may see it as a sign of concern. Either way it currently is a reflection of the uncertainty of markets and it should continue to deliver tentative moves higher on this cross.
Expected range: 0.5800 – 0.5850

NZDJPY: Another day…
Another day likely within the 59JPY range for this cross as the JPY is confined to tight ranges. NZD moves may see attempts to move below 59.00 but this is not likely to be sustained today.
Expected range: 59.00 – 60.00

NZDGBP: Not so fast…
While the GBP has managed to strengthen against the EUR it has not been so lucky against the NZD. Yield differentials and positional support have lifted this cross and may keep it in 0.49GBP territory today.
Expected range: 0.4895 – 0.4925


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