Wednesday 25th January 2012
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CURRENCY: The NZD should find itself struggling to maintain recent levels as the RBNZ OCR approaches and a settlement to the Greek debt situation appears to be more difficult to obtain than initial estimates.
RATES: Another quiet London session for NZ rates, so expect the market to open unchanged, with all eyes on spending and AU CPI data later today.
CURRENCY: Increasing doubt around Greece and the subsequent impact on the EUR flowed through the AUD to the NZD overnight. The NZD was a reluctant follower that failed to avoid the increased risk concerns.
GLOBAL MARKETS: It was a bit of a mixed bag overnight, but as eluded to below, probably slightly negative on balance with most Northern hemisphere equity markets off. Bond yields also rose, the EUR hung in there, and commodities rallied, led by grains. Gold fell almost $10.
KEY THEMES AND VIEWS
MORE EUROPEAN CONCERNS. A mildly risk-off session, with sentiment weighed down by the usual raft of euro-negative comments: stalemate on the Greek deal; continued uncertainty around the size of any 'combined' euro area rescue fund; Wall Street Journal reports that Portugal may require a second bailout package; and that S&P would qualify Greece “in all likelihood” as a default. That said, there was some support provided by the decent recovery in euro area activity, with the release of better than expected flash PMI indices. An auction of 3- and 6-month Spanish bills went well, with demand solid and yields achieved some 0.5ppts below the last comparable sales. Across the pond, regional US manufacturing is also looking healthier in January, with the Richmond Fed index stepping up to a reading of +12 in January – its highest level since March 2011. This is all good news, and adds to what has been a positive vibe around US data, but don’t expect too much US market action before tomorrow’s FOMC Statement. Similarly, the NZ market is treading water ahead of tomorrow’s OCR Review.
IMF DOWNGRADES FORECASTS. The IMF released its widely-flagged downgrade to global growth in its World Economic Outlook update (as such, there was no market reaction). The IMF’s global growth forecast for 2012 has been cut to 3.3% from 4%, largely driven by a significant downgrade to European, and to a lesser extent, Chinese, growth. Global growth in 2013 is now expected to be 3.9%, down from 4.5%. Note that the IMF has left its US growth forecast unchanged at +1.8% for 2012 (the only major economy not to suffer a forecast downgrade in 2012!), with 2013 revised down 0.3ppts to +2.2%. Europe is expected to endure a mild recession in 2012, with the aggregate Eurozone economy contracting by 0.5% (1.6ppts weaker than the September forecast), driven by significant expected falls in activity in Italy and Spain. In 2013, the euro area is forecast to grow just 0.8%. China's growth forecast has been revised down to 8.2% in 2012 from 9% previously, and 8.8% in 2013 (a cut of 0.7ppts).
OTHER EVENTS AND QUOTES
• BOE’s Posen says officials will increase their bond-purchase target next month if new forecasts for growth and inflation justify expanding stimulus again. No real surprises there.
NZDUSD: Rest break…
With doubts around the timing and extent of a Greek debt settlement and approaching RBNZ OCR the NZD finds itself with little further topside momentum today. Expect the overnight struggle to sustain 0.81+ levels to continue throughout today.
Expected range: 0.8050 – 0.8120
The AUD is finding the road harder going with today’s Australian Q4 CPI likely to present further speculation of deeper Australian interest rate cuts. The anticipation of this release is assisting topside moves on this cross. They should today be limited to the mid 0.77AUD zone unless Australian data delivers a negative quarterly result.
Expected range: 0.7700 – 0.7750
NZDEUR: Another look…
Support around 0.6185 was briefly revisited overnight before this cross returned to the 0.62EUR zone. Today topside around 0.6238 should hold with another possible test of support around 0.6185 on the cards.
Expected range: 0.6185 – 0.6238
NZDJPY: Squeezing up…
Key technical resistance is approaching as the JPY picks up the mantle and weakens overnight. No change from the BoJ and comments from the Japanese PM Noda that the BoJ must work to overcome the strong JPY helped the cause. For today a break of resistance will not be an easy task.
Expected range: 62.35 – 62.98
NZDGBP: Support held…again…
Technical support around 0.5165 again held overnight and delivered another bounce on this cross. Tonight’s UK economic news in the form of UK Q4 GDP and the BoE meeting minutes should deliver further tests of support.
Expected range: 0.5165 – 0.5205
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