Friday 27th January 2012
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CURRENCY: Expect the NZD to remain in a state of situational analysis as market participants continue to digest yesterday’s US FOMC announcement. Topside levels will be further investigated at some point in the medium term.
RATES: US yields continue to track lower, but as they bounced off yesterday’s post FOMC lows, in level terms they are still a tad above where they were this time yesterday. As such, don’t expect the overnight rally in yields to do too much for the local market today.
CURRENCY: With little change from the RBNZ, markets had only the US FOMC to trade off. Support levels were lifted as supply diminished particularly in overnight trading leading to the move higher.
GLOBAL MARKETS: Yesterday’s dovish FOMC statement has kept risk appetite elevated in the European and US trading sessions. FX markets have been most significantly affected, with yesterday’s broad-based USD sell-off extending overnight. Both the Aussie and the Kiwi have shot higher, again outperforming on the major crosses. Indeed, NZDUSD traded up towards 0.8240, almost topping peaks not seen since late October last year, while AUDUSD has traded firmly back above 1.0660 (also at its highest level since October).
European equities (up 1.5 - 2%) have outperformed US bourses (trading at around flat at the time of writing), and sovereign bond yields have drifted lower across the board (well, all except Portugal’s, with persisting market fears of a second bailout package being required).
KEY THEMES AND VIEWS
PONDERING THE WEEK THAT WAS. Yesterday’s FOMC Statement caught the market on the hop, and while there was a chorus of analysts calling for QE at some point, few would have expected the FOMC Statement to be so explicit or for Bernanke to have been so candid so soon.
But he was, and it was clear from the press conference that followed that QE3 is very much up for consideration, and that the voting members of the FOMC are not entirely convinced that the US outlook is as rosy as the recent positive dataflow suggests.
Overnight data were certainly a mixed bag, with both durable goods and Kansas City Fed data overnight both surprising to the topside. This was countered by weaker housing and jobs data (although the former has had a reasonable run recently). And that’s the problem – recent data has not all been strong, and with such a huge negative equity overhang and a high unemployment rate, one has to question how sustainable signs of a US rebound might actually be, which is sad really.
Indeed, with Europe potentially drifting into recession, and Asia slowing, if the US fails to pick up, we’ll be looking at a synchronised global slowdown, and that’s not a great outcome for NZ.
Of course, in previous bouts of QE we have tended to see commodities rally, and if we see it again, that will at least counter a strong Kiwi, which is flying high again.
OTHER EVENTS AND QUOTES
• British PM Cameron calls financial transactions tax “Madness” in a scathing speech at Davos, suggesting that such a measure could cost the European Union economies €200 billion and 500,000 jobs. Bloomberg news reports that Germany is preparing plans for an alternative stamp duty style tax in a bid to win Cameron’s support. The measure would be accompanied by rules to limit excessive automated trading.
NZDUSD: No looking back?
How much of a reversal of recent strength is possible for the NZD? Little, would be the logical argument given the stance of the US FOMC and the high likelihood that yields in the US will remain flat for some years to come. Support around 0.8183 appears out of reach today with a stronger finish to the week expected.
Expected range: 0.8195 – 0.8285
NZDAUD: In the same boat…
Limited downside moves for this cross as tandem moves take place. Offshore investors have the Australasian currency bucket in one section of their returns and it appears that will remain the case in the short-term.
Expected range: 0.7695 – 0.7745
NZDEUR: Trying on the topside…
Offshore investors have little choices when weighing up USD and EUR returns and as such this cross should be favoured for more topside moves. Initial resistance around 0.6256 might prove a support point once broken.
Expected range: 0.6229 – 0.6256
NZDJPY: Moving on up…
Another cross where yield returns should ensure further gains. A lift however into the 64JPY territory should not take place today.
Expected range: 63.15 – 63.85
NZDGBP: Looking up…
Resistance at 0.5250 is proving difficult to break through. It will require further poor UK economic data which should be just around the corner to achieve a sustainable break towards last year’s highs.
Expected range: 0.5215 – 0.5250
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