Thursday 18th August 2011
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CURRENCY: Expect range trading in the local session today, with no data from NZ or AU. The offshore session should again be following the efforts of the Swiss National Bank (SNB) in their attempts to rein in the wild CHF.
RATES: Very quiet kiwi trading in the overnight London session. NZ rates are expected to open this morning’s session broadly unchanged.
CURRENCY: All eyes were on the Swiss National Bank as their expected ‘radical’ measures to tame the CHF disappointed the market and their cause. NZD had a subdued night.
GLOBAL MARKETS: Equities were heavy at the start of the European session, with the lack of a decision by Merkel/Sarkozy and a dovish set of UK MPC minutes setting the tone, before improving risk appetite returned. The Euro Stoxx 50 Index rose 0.3%, with US bourses broadly unchanged. European Government bonds and US Treasuries continued to rally, with the US 10-year yield down to 2.17% at the time of writing. Commodity prices rose on a weaker USD, led by soft commodities and energy. Gold approached US $1800 oz. Crude oil prices firmed.
KEY THEMES AND VIEWS
SWISS STOP SHORT OF ANNOUNCING A CURRENCY TARGET. Overnight the Swiss National Bank announced it will boost liquidity to the money market, expanding banks’ deposits to 200 billion francs ($253 billion) from 120 billion francs. The Bank will also continue to buy SNB Bills and use foreign-exchange swap transactions to weaken the franc. It “will, if necessary, take further measures against the strength of the franc”. However, the SNB stopped short of announcing a target range for the franc, which saw the franc strengthen. Whether the SNB undertakes unilateral currency intervention remains to be seen, as it would involve throwing a lot of money at the market, with little chance of success in the current mood. Increased safe-haven demand has boosted the demand for the franc, which has strengthened by more than 10% against the euro and nearly 20% against the USD since the start of the year. With exports contributing about half of GDP, the Swiss government has already signalled the franc’s ascent will hurt the economy. Ironically, a weaker economy may be more effective than intervention.
AUGUST BANK OF ENGLAND MINUTES DOVISH. The MPC voted 9-0 to hold the key policy rate at 0.5%, a record low, with members Dale and Weale no longer preferring to increase the bank rate to 0.75%. Posen remained the only member to vote for an expansion of the asset purchase programme (i.e. more QE). While some members had considered such a move, they felt that the case was “not yet strong enough”, although more QE could be required if downside risks to the economy materialise. Weak labour market data overnight added to the soft tone.
OTHER EVENTS AND QUOTES
• Sarkozy-Merkel plans disappoint. The verdict seems to be that the proposals have been too timid to calm markets. The proposed financial-transactions tax has not gone down well with the banking community. What is required is decisive leadership, which will set out a clear roadmap for the future. Quick fixes merely delay the inevitable.
• US core producer prices leap. Much of the gain was attributable to higher prices for light vehicles and tobacco. Tomorrow’s CPI will be key.
NZDUSD: Slowly slowly
The NZD is marginally higher this morning as the flow-on effects of higher commodities and a broadly weaker USD kept the kiwi on the front foot. No NZ data should keep the NZD range bound with a bias to the top side.
Expected range: 0.8340 – 0.8430
NZDAUD: Rangy II
There was little to report on this cross overnight. A rally helped by firmer commodities saw the AUD slightly out perform on the day, but remain within recent ranges. A lack of data from both centres should see subdued ranges in this pair continue in our local session.
Expected range: 0.7920 – 0.7980
NZDEUR: Same same but different.
Sticking to recent ranges overnight, the cross again failed to break through 0.5820. EUR had a choppy session with a more confident EUR cut short as the SNB tried and failed to stem the run of the CHF, and disputes over the proposed Merkel-Sarkozy plan surfaced. Expect subdued trade today with the excitement reserved for offshore markets, where all eyes will be back on the SNB and the core Euro leaders.
Expected range: 0.5770 – 0.5820
NZDJPY: Not in a rock band
NZDJPY found a familiar top in trade over night before the NZD came under selling pressure late in the offshore session. Little to speculate on today should see the pair remain in its band.
Expected range: 63.60 – 64.50
The Sterling dismissed a dovish Bank of England statement and more Jobless claims than anticipated and out performed the NZD overnight. A bounce in the pair from here is likely, but it will be a slow grind with little to excite the markets in local trade.
Expected range: 0.5060 – 0.5100
Source ANZ Research
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