Economic views and news - Tuesday, 23 August

Tuesday 23rd August 2011

OUTLOOK

CURRENCY: A mix of local data, speeches and announcements today may well be enough to provide distractions to currency movements. A positive start to the offshore equity markets should help the NZD test the 200 hour moving average.

RATES: No kiwi trades were reported in the overnight London session. Local rates are expected to open this morning unchanged.

REVIEW

CURRENCY: Initial downside moves for the NZD were easily reversed going into the European session. Strong demand from a variety of offshore participants for the NZD ensured that it avoided any serious tests of support levels.

GLOBAL MARKETS: A quiet session overnight in northern hemisphere markets, with no economic data to drive direction there was a positive tone to sentiment with markets looking ahead to the Jackson Hole meetings. Equities registered small rises. Bond yields were broadly unchanged in the UK and Germany, firmed in the US and registered larger rises in Greece and Portugal. Commodity prices rose, led by gains to grains and precious metals. Crude oil (WTI grade) rose 2%, although Brent oil prices eased as the Libyan conflict nears an end. Gold prices rose and are approaching US $1900/oz.

KEY THEMES AND VIEWS

LIBYAN REBELS DECLARE END OF QADDAFI RULE. Opposition fighters were reported to be close to the presidential compound in Southern Tripoli. While fierce fighting continues and Qaddafi (whose whereabouts are still unknown), has urged loyalists to keep fighting, rebels are confident that the six months of conflict is near the end, with the 42 year reign of Qaddafi to be over. World leaders have added to calls by the rebels for a ceasefire and for Qaddafi to surrender. The rebel council have announced they will appoint a transitional government, with the intention of putting in place a democratic government and institutions, but whether these noble intentions will be achieved remains to be seen. The rebel council are also in preparations to quickly restore Libya’s oil production (1.6m barrels per day), having already been in talks with major oil companies. While this will take time, Libya has huge potential, containing the largest oil reserves in Africa. Brent oil prices have continued to tumble in anticipation. Arab ministers are meeting over the next few days and are contemplating whether to officially recognise the rebel leadership.

OTHER EVENTS AND QUOTES
•       Bundesbank remains upbeat. The German economy is expected to grow around 3% in 2011, with robust global growth expected for next year, even though Europe’s sovereign debt crisis has clouded the outlook. A broadside was fired to European leaders, whose latest decisions threaten to weaken euro’s institutional framework and compromise inflation-fighting role of the ECB.
•       US data not all one way traffic. The headline Chicago Fed National Activity Index (which encompasses the whole economy, not just manufacturing or services) printed at -0.06 in July, implying slightly below trend growth rates for the US economy. It remains away from the critical -0.7 level, indicating the increasing likelihood of recession.
•       China’s HSBC Flash PMI will top today’s AXJ calendar, especially since the index fell below 50 last month, adding to concerns of a slowdown in the Chinese economy.

NZDUSD: Is it over…
Despite attempts yesterday to move lower, the NZD lifted overnight from key support levels. Demand out of Europe was enough to ensure it steered clear of trouble and today it is far enough away from key support levels to be able to comfortably look on the topside. Troubles for world economies have not disappeared and thus further dips will come in the NZD, just not today.
Expected range: 0.8230 – 0.8290

NZDAUD: Story time…
Expect this cross to find itself supported today having failed to take out the last line of defence at 0.7850 yesterday. Any lift in the RBNZ inflation expectation data may assist an extension back towards the mid 0.79AUD level later today.
Expected range: 0.7890 – 0.7950

NZDEUR: Held…
Hopes on the European front rest with ECB President Trichet while traders work off technical levels. With a key daily support level on this cross holding yesterday (0.5670), an increased degree of comfort favoured the NZD overnight. This should continue today although topside moves should be limited by sellers above 0.5758.
Expected range: 0.5722 – 0.5758

NZDJPY: Still contemplating…
The BoJ remains in contemplation mode and unlikely to add anything to the market today. The NZD moves have lifted this cross and avoided a real test of 62.20 support. Today an extension towards 63.80 is possible.
Expected range: 62.90 – 63.80

NZDGBP: Holding up…
Moves on the NZD side of the equation have countered the strength of the GBP that arrived off the back of stronger equity markets. Support at 0.4950 appears to be enough at this point to hold the downside.
Expected range: 0.4995 – 0.5045

Source: ANZ Research

Comments from our readers

No comments yet