Wednesday 18th January 2012
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CURRENCY: Technical levels should remain in place to cap further topside attempts for the NZD today. Expect the NZD to find increasing selling pressures should it move closer to this level.
RATES: A very quiet overnight London session. Kiwi rates are expected to open today’s session broadly unchanged.
CURRENCY: The NZD moves defied the local data releases yesterday and traded off the back of the Chinese Q4 GDP release. Overnight it squeezed out several short positions tracking the moves of the AUD.
GLOBAL MARKETS: Equities were boosted on increased speculation that the PBOC will ease monetary policy to boost growth, with improving data and a successful Spanish debt auction also helping sentiment. Government bond yields in the US, France and Germany rose, but fell in Greece, Ireland, Italy, Spain and Portugal. Supported by a weaker USD, the CRB commodity price index rose 0.8%, with precious metals and oil prices up more than 2%.
KEY THEMES AND VIEWS
GREEK DEFAULT LOOMING. Greece is running out of time to avoid becoming the first Eurozone economy to default after talks between the Greek authorities and the Institute of International Finance (IIF, who represent private holders of Greek government debt) have stalled, with a €14.5bn bond payment becoming due on March 20. The Greek PM Papademos is now due to meet with a group representing official creditors on January 20. Officials from the Institute of International Finance said they are still committed to reaching a "voluntary" debt deal, and urged "all parties to work in good faith toward this end with a sense of urgency”. The sticking point remains whether Greek officials will be able to convince sceptical bondholders to agree of voluntary write downs on Greek debt, particularly when there remain question marks over whether the Greek authorities have the necessary domestic backing to push through spending cuts and other reforms. With short-maturity debt sales the only source of financing available, Greece sold €1.625bn of 13-week Treasury bills overnight at an average yield of 4.64%. This is not nearly enough. The IMF, meanwhile, has said that it can only lend more money to Greece if the program is fully financed, essentially telling Europe and bondholders to find a funding solution to fill the financing hole or accept the alternative (i.e. default). Complicating the issue, some bondholders see default – and collecting on the subsequent insurance payout – as a better deal than what is being offered by government officials. Messy.
OTHER EVENTS AND QUOTES
US Empire State manufacturing index at nine-month high. Most sub-indices improved, particularly new orders and employment.
European debt auctions run smoothly. Of the €4.88 of Spanish debt on offer, 12-month debt sold at an average yield of 2.049% (vs. 4.05% at the December 13 auction), with 18-month paper selling at 2.399% (vs. 4.226% last month). The EFSF sold €1.501bn of 6 month bills at an average yield of 0.266%, with a bid to cover ratio of 3.1.
Dairy prices gained 1.5% at the GlobalDairyTrade auction, achieving a weighted average price of US $3,701/tonne.
NZDUSD: Bulking up…
Moves in the NZD today may be a little more sedate having failed to break through key technical levels overnight. Increased selling interests, perhaps a little early, are likely should the NZD find its way back to that technical level.
Expected range: 0.7968 – 0.8036
Weak attempts to break through resistance at 0.7725 yesterday came to nothing as the AUD outpaced the NZD moves. Similar trading is expected today with topside levels being lowered from the mid 0.77AUD last week.
Expected range: 0.7665 – 0.7715
Positive news on the German economic front helped to clean out plenty of short EUR positions. While this dented the cross marginally it found enough strength to lift back to yesterday’s levels. A break through 0.63EUR still looks too hard today.
Expected range: 0.6240 – 0.6300
The continued topside bias, based around the NZD doing all the work, should be tempered today by difficulties on the NZD side. Expect resistance around the high 61JPY level to cap trading this afternoon.
Expected range: 61.08 – 61.88
NZDGBP: Extra set…
Having lifted above 0.52GBP this cross did in fact struggle as it approached resistance at 0.5225. Another test of this level should play out today but be limited by the moves of the NZD.
Expected range: 0.5190 – 0.5225
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