Wednesday 14th September 2011
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CURRENCY: Familiar themes greet markets today as Eurozone developments hold sway over the moves of the NZD. Markets have just another day to wait for the RBNZ Monetary Policy Statement and the surrounding comments.
RATES: The kiwi rates market was very quiet overnight, with minimal pricing and no trades despite some receiving interest evident. With the September MPS looming local rates are expected to open broadly unchanged.
CURRENCY: Another brief move under 0.82USD overnight for the NZD met with offshore and local demand which was enough to reverse the move. Gains against the AUD continued, although an extension past 0.80AUD did not happen.
GLOBAL MARKETS: A very volatile session overnight, with the focus squarely on the Greek debt situation. Equities were boosted by a US rally late in the European session, with French bank shares rebounding. Government bond yields rose, with the US 10-year yields approaching 2%. Greek 10-year yields rose to 21.4% on increasing speculation that a debt default is on the cards. CRB commodity prices ticked higher, led by 2% increases for gold and oil. Prices for grains fell.
KEY THEMES AND VIEWS
MERKEL RULES OUT GREEK DEFAULT. While there are increasing calls, both within and outside Germany, to allow a Greek debt default, German Chancellor Merkel has held firm noting that an “uncontrolled insolvency” would further roil markets already spooked by the prospect of default.
According to Merkel there is no system in place for an “orderly” insolvency to take place, until the permanent Eurozone rescue fund is established in 2013. A Greek default now could quickly snowball and engulf other economies in the region, with European banks likely to be in the firing line.
Merkel vowed that Greece is taking the right steps to get its next bailout payment, being “very optimistic” that Finland’s demands for special collateral as part of the Greek bailout package will be met. This strongly implies she expects Greece to qualify for the next tranche of aid next month.
Merkel also called for time for the Greek government to be able to reduce its debt and carry out the necessary reforms. Markets remain sceptical.
Greek 10-year yields are now above 21%, with 5-year CDS spreads above 41%. All of this talk will need to be backed up by action. Authorities are acutely aware of the risks of contagion, with the Portuguese Government reaffirming its commitment to trimming its fiscal deficit to 3% of GDP by 2013.
The EU’s Van Rompuy called for complete implementation of Italy’s budget-cutting steps in order to restore confidence in financial markets.
Earlier rumours of Chinese interest in purchasing Italian bonds/assets were not confirmed by the Italian government, which did not make for a successful Italian bond issue overnight, where demand was 1.28 times on offer, at an average yield of 5.6% (versus 1.93 times at 4.93% for the July 14 auction).
OTHER EVENTS AND QUOTES
• Bank of England MPC bear, Adam Posen repeated recent calls for G7 central banks to enact further monetary stimulus without delay. For the UK, Posen believes that a £50bn extension to the Bank of England’s asset purchase target should be implemented immediately.
• U.S. President Obama: Eurozone countries need to better coordinate their fiscal and economic policies to overcome crises facing the region.
The upcoming RBNZ OCR/MPS tomorrow will keep markets on their toes today as they attempt to anticipate the directional moves of the NZD. Support is likely to be maintained under 0.82USD while an extension towards the high 0.82USD is possible but it should lack momentum to break 0.8280.
Expected range: 0.8200 – 0.8280
NZDAUD: Mālō e lelei…
Perhaps this cross can say hello to levels above 0.80AUD today. Such a move should be assisted by further Australian consumer confidence data and tensions around offshore investment in Australia that may have some time to play out.
Expected range: 0.7944 – 0.8014
NZDEUR: Mixed bunch…
The troubles continue throughout Europe as the ideas around solving certain countries issues gets creative. At this point the EUR has picked itself up off recent lows, as have equities, but a sustained recovery looks difficult at this point.
Expected range: 0.5988 – 0.6038
This cross continues a consolidation move, with little ability to fall through support and failing momentum on the JPY side of the equation. Expect another day where it remains within recent ranges.
Expected range: 62.80 – 63.75
NZDGBP: Och aye the noo…
A round of poor UK data was enough to keep the GBP depressed overnight and inspire gains on this cross. Topside action is limited to the resistance line around 0.5228 at this point.
Expected range: 0.5188 – 0.5228
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