Economic views and news - Thursday, 13 October

ANZ Research

Thursday 13th October 2011

OUTLOOK

CURRENCY: A continuing corrective move for the NZD expected today as markets await Australian employment data for September this afternoon. Support from the EUR quarter may well assist an attack on 0.8000USD today.

RATES: More payside interest was apparent in the overnight London session. We expect local rates to open slightly higher, with markets awaiting the Australian employment data for signs of direction.

REVIEW

CURRENCY: The consolidation base formed over the past week has assisted in delivering an explosive move higher. Hopes of a successful Slovakian vote has helped the EUR push higher, taking away a stopping point for the NZD.

GLOBAL MARKETS: Markets were on the front foot after the strong showing from Chinese equities yesterday. With limited data to focus on attention was on Slovakia, but the buying of risk was relentless most of the session. European equities were up 1-3%, with the US S&P500 up around 1.8%, with this morning’s dovish FOMC minutes having little immediate impact. The euro pushed higher, with greater confidence the second Slovak vote on expanding the EFSF will pass. Government bond yields firmed by around 10bp, with US yields at 2.25% at the time of writing. CRB commodity prices inched higher, with copper, silver and gold leading the charge.

KEY THEMES AND VIEWS
REHN: GREEK DEBT CRISIS CAN BE “RESOLVED”. Equity markets are still giving European leaders the benefit of the doubt, and sentiment was bolstered by the EU Economic and Monetary Affairs Commissioner noting the euro area was approaching a consensus on resolving the debt crisis. While growth is stalling and dangers are still apparent, the region can avert “calamity” by co-ordinating action, by increasing banks’ capital and enhancing growth. This was backed by comments by European Commissioner Barosso who noted “reactive and piecemeal responses to different aspects of the crisis are no longer sufficient”. Actions, however, speak louder than words, and rhetoric will only work for so long.

SEPTEMBER FOMC MINUTES HIGHLIGHT DOWNSIDE RISKS. “The Committee agreed that it was important to acknowledge, in the statement that economic growth remained slow and that “indicators pointed to continuing weakness in overall labour market conditions”. It also agreed to note that “inflation appeared to have moderated since earlier in the year, and that longer-term inflation expectations remained stable”. Members generally continued to expect “some pickup in the pace of the economic recovery over coming quarters but anticipated that the unemployment rate would decline only gradually and agreed that there were significant downside risks to the economic outlook”. “Two members said that current conditions and the outlook could justify stronger policy action”. “ Three members concluded that additional accommodation was not appropriate”.

OTHER EVENTS AND QUOTES
• Slovak parties expected to reach agreement. A second vote on approving an enhanced EFSF will be held today or tomorrow.
• New Greek Haircut for private investors under consideration – Cuts of 30-50% versus the 21% in the July 21 deal are being considered according to media reports.

NZDUSD: New life…
The NZD may well continue to lurk around the 200 day moving average today (0.7961) looking for direction from offshore. A stronger Australian September employment release is likely to deliver an attack on 0.8000USD which may not yield on the first attempt.
Expected range: 0.7945 – 0.8015

NZDAUD: Solid…
A weaker Australian employment release today would see a brief spike up on this cross. The inability to hold support at 0.7781 should be of concern to importers on this cross as it opens up the ability to revisit the 0.76 territory.
Expected range: 0.7812 – 0.7862

NZDEUR: Shortcuts…
Technical resistance at 0.5786 may well prove a tough hurdle today and require Australasian assistance. Expect the fortunes of the EUR to brighten but for how long? Detail around a rescue package needs to be forthcoming for such a move to be sustained.
Expected range: 0.5750 – 0.5790

NZDJPY: Right track…
Yield wins out eventually as many realise returns are a must. As the Risk on lever is turned up so is this cross. It should not venture sustainably past 62.47 today but at some point it will take out this resistance level.
Expected range: 61.50 – 62.47

NZDGBP: Home…
This cross fells more at home above the 0.50GBP level currently. It has looked towards the next key technical level (0.5063) and may take this out today despite more positive UK data overnight.
Expected range: 0.5035 – 0.5063

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