Economic views and news - Friday, 9 September

ANZ Research

Friday 9th September 2011

OUTLOOK

CURRENCY: Game on for the NZD today! A lack of local economic data will have markets looking towards the Chinese monthly data releases due this afternoon. Any weakening of activity will limit topside moves for the NZD.

RATES: There may be a lot of interest in NZ due to the RWC, but there was no interest at all in NZ rates overnight in London. Expect an unchanged open this morning with thin liquidity as traders’ focus turns elsewhere.

REVIEW

CURRENCY: A weak Australian August employment report yesterday saw the NZD lifted from key support around 0.8320 as switching took place. Overnight the NZD consolidated the move but was unable to break higher.

GLOBAL MARKETS: European equities managed to post gains, which filtered through into US equities initially. But US equities subsequently gave back those gains and fell into the red following weaker jobless claims data, with the losses extending following Fed Chairman Bernanke’s speech. Equity weakness meant US Treasury prices rose, sending the 10-year yield below 2%. Safe haven demand saw gold prices recover, while oil traded sideways.

KEY THEMES AND VIEWS

WAITING FOR ACTION. The BoE and ECB did nothing, as was widely expected, though the latter did shift to a neutral stance. But there is no indication yet that the ECB is prepared to cut rates, which will have disappointed some.

Fed Chairman Bernanke’s speech offered nothing new. Indeed, in many ways it was similar to the one he delivered at Jackson Hole. He still talks about a range of tools that the Fed could use, but did not outline any new ones. It is clear that the two-day September FOMC meeting will be used to persuade the dissenters to vote in favour of more stimulus. One of those dissenters, Philly Fed President Plosser, will be hard to turn given that he still thinks the 2013 pledge was a bad idea. The lack of action or commitment to action has disappointed markets.

Increasing concern that Greece will fail to meet its fiscal targets, which are a condition for getting the bailout funds, is sparking new concerns. The focus now turns to US President Obama’s speech later today, where he is set to unveil a jobs stimulus package. The risk is that the package falls short of expectations, or the whole package has trouble getting through Congress, disappointing markets again and leading to further shedding of risk.

The deteriorating global outlook is getting more serious, and has been the key focus of recent central bank decisions. Norway’s Norges Bank has signalled that it may cut rates to combat a strengthening currency and head off undesirably low inflation and growth.

Given all that is going on, and with markets still volatile, it is timely that the Rugby World Cup kicks off today, providing us with a much needed distraction for the next six weeks, not to mention a much welcome fiscal stimulus to the NZ economy.

OTHER EVENTS AND QUOTES
• Bank of England left their benchmark interest rate unchanged at 0.5% and maintained their asset purchase plan at £200bn.

• ECB maintained its key policy rate unchanged at 0.5%, but shifted to a neutral policy stance.

• US Federal Reserve Chairman Ben Bernanke: “The Federal Reserve has a range of tools that could be used to provide additional monetary stimulus… and are prepared to employ these tools as appropriate to promote a stronger economic recovery in a context of price stability.

NZDUSD: Kick off…
Today’s local focus will clearly remain on the start of festivities for the Rugby World Cup. Global attention will be on the NZD and should ensure that many are more than just spectators. Expect it to remain within a tight range today awaiting any signals from the monthly Chinese data release.
Expected range: 0.8315 – 0.8395

NZDAUD: Dummy runner…
Support at 0.7781 repelled attempts to take it out yesterday as a weaker Australian employment release reversed the move. Attempts to break back into the 0.79AUD territory should not be possible today as markets settle in the 0.78AUD zone.
Expected range: 0.7825 – 0.7895

NZDEUR: Injury break…
The ECB left interest rates on hold overnight. Comments from ECB President Trichet have meant a neutral stance with growth risks skewed to the downside and inflation seemingly coming under control. This weakened the EUR and ensured this cross moved higher.
Expected range: 0.5980 – 0.6020

NZDJPY: Forward pass…
The expected move higher was duly delivered overnight. An extension towards 65.40 is possible and may be assisted by Japanese Q2 GDP data today although the more likely timing is early next week.
Expected range: 64.21 – 65.05

NZDGBP: Loose head…
No change from the BoE to the interest rate or asset purchase target. While this rescued the GBP from the depths against the USD, it was not enough to stop a test of the resistance in the mid 0.52GBP region. This may well be tested again today.
Expected range: 0.5202 – 0.5252

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