Thursday 9th February 2012
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CURRENCY: A more subdued day waiting on local NZ Q4 employment data is likely for the NZD today. Having corrected from overnight highs it may well look to test support should a negative surprise be delivered.
RATES: Expect yields to open higher after swaps traded higher in London.
CURRENCY: Overnight the NZD cornered the key resistance level at 0.8380 and dealt it a few heavy blows. The extension past this level was short lived with very early morning trading backing it off the overnight highs.
GLOBAL MARKETS: An extremely quiet day on European markets. Sentiment was supported from the open on a Wall Street Journal article that suggested the ECB may participate in the PSI deal and exchange its Greek bonds at a price below face value. The NZD made fresh highs for the year (above 0.8400) overnight, but has since been savaged, with AUD and NZD succumbing to losses in the wee hours. The GBP has been heavy ahead of tonight’s BOE meeting. Global bond yields are generally a touch higher, while commodities are lower, led by softs.
KEY THEMES AND VIEWS
GREECE BACK IN THE SPOTLIGHT. Greek negotiations with private sector creditors are ongoing, and media sources are once again talking about there being an imminent announcement today, but of course we have heard that before.
Media outlets are reporting that the Greek PM is meeting with the leaders of the other main political parties in a bid to nut out a suitable deal. Once this concludes, the next step is for the Euro-area finance ministers to meet (scheduled for tomorrow), where they presumably hope to give their approval to the PSI deal, and then approve the next dollop of bailout funds.
News that the ECB might make some concessions was taken kindly by the market, and the presumption is that they will exchange their bonds at prices close to what they paid for them (remember, the ECB bought the bonds at a deep discount). However we should add that the ECB later said it was undecided as to whether it would participate.
Talk that China may soon invest €100bn in the EFSF boosted the mood. Although the negotiations are obviously difficult (hence the lack of progress), most expect some kind of “concrete” outcome to be reached.
German Chancellor Merkel has certainly made it clear she does not see bankruptcy or a euro exit as an option. Whatever happens, and however “concrete” the PSI deal is, we’d be surprised if this is the last time markets get somewhat held to ransom by Greece.
The PSI deal won’t solve Greece’s problems, but it enables the next bailout. What really matters is whether the Greeks can grow their economy and clear their new, lower, debt burden. What matter for New Zealand is that a deal gets done, things remain reasonably orderly, and funding markets continue to function well.
LOOKING TO TODAY’S NZ JOBS DATA. All eyes are on this morning’s HLFS data. We expect to see a 0.2% increase in employment, and for the unemployment rate to fall from 6.6% to 6.5%. If anything, QES data earlier in the week suggest there is a risk the data could be a tad stronger, but we will see. If it is, we would not be surprised to see the market move to all but price out its long held expectation of RBNZ rate cuts, for the RBNZ seem comfortable with the OCR here.
Having briefly explored the topside overnight the NZD should look towards support today. Key Q4 employment data may well assist the move alongside a tiring AUD.
Expected range: 0.8310 – 0.8380
NZDAUD: Going the distance…
Tight ranges for this cross should remain today’s theme as it continues within the 0.77AUD range. Support tests will be difficult as the AUD suffers from fatigue after recent moves.
Expected range: 0.7715 – 0.7775
NZDEUR: Split decision…
Continued expectations around Greece ensure markets are kept on edge for now. The EUR may well have expended possible retracement moves but this cross looks like it will again struggle today.
Expected range: 0.6275 – 0.6315
NZDJPY: Technical draw…
Yield hunters understand their limits and as such this cross should back off from current levels as the NZD eases. Buying support below the 64JPY level may step aside for now and await lower levels.
Expected range: 63.75 – 64.40
Further attempts to knockout the 0.5300GBP level failed overnight despite the GBP weakening in anticipation of tonight’s BoE decision. Further corrective moves should take place today.
Expected range: 0.5255 – 0.5295
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