Monday 21st November 2011
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CURRENCY: Closing last week below key support should ensure the NZD continues to probe lower levels. The impending NZ general election will have offshore investors on maximum alert given potential outcomes.
RATES: After a quiet night, NZ rates are likely to open unchanged.
CURRENCY: Valiant topside attempts on Friday evening amounted to nothing as the NZD finished the week on the back foot. Risk concerns and increasing closer scrutiny around the local election assisted the move lower.
GLOBAL MARKETS: Markets had a relatively quiet day in Friday’s offshore session. A bout of risk-on around midday London time was sparked by suggestions the ECB could sneakily circumvent the German roadblock and provide more bailout funds by lending to the IMF who could then on-lend it. However, by the end of the day the move was unwound. European equities ended lower, while US indices were slightly down. The “risky” European 10-year bonds edged 10-20bp lower throughout the day, courtesy of ECB purchases. Ten year US Treasury yields rose slightly. Oil fell, for its first negative week in seven, while gold was flat and other commodities fell.
KEY THEMES AND VIEWS
SUPER MARIO HITS BACK. ECB President Mario Draghi hit back at those asking him to do more (print money, in essence), saying the ECB’s credibility was on the line, and that politicians had to step up and make good their pledges to bolster the rescue fund. Keeping prices stable “is the major contribution we can make in support of sustainable growth, employment creation and financial stability. And we are making this contribution in full independence.” That said, the ECB continued to buy dodgy debt all week, and succeeded in pushing Italian yields back below the key 7 percent level. But these relatively small-scale actions are only buying time. The challenge for politicians is to use that time for something more useful than providing an exit window for a few lucky investors.
OTHER EVENTS AND QUOTES
• Interim Italian PM Mario Monti passed his final confidence vote, as ex-PM Silvio Berlusconi said Monti’s term should be until 2013 to allow him to complete reforms. Protests continue in both Italy and Greece about their sudden shift from democracy towards “enlightened despotism”. But for now it appears both leaders have a solid mandate for reform.
• Solid US data run continues. US leading indicators printed better than expected at +0.9 percent m/m in October.
• Spanish election results are due this morning. A landslide victory is expected for the centre-right opposition. One suspects this will be an ongoing theme in European politics for some time as voters vent.
• China’s Premier Wen Jiabao promised Barack Obama China will reform the yuan in an “active, gradual and controllable manner”.
• The congressional debt supercommittee has hit a wall over the issue of tax rises for the rich. It’s now too late to send new proposals for costings. The committee is charged with agreeing $1.2 trillion of savings by Nov. 23. If they can’t, automatic across-the-board spending cuts are due to start in January 2013.
Just a week perhaps before the local New Zealand general elections deliver a result for the market. Offshore investors will continue to position themselves for a variety of outcomes, which may result in further moves lower for the NZD. The technical target of 0.7437 is reachable depending on how pre-election polls play out this week.
Expected range: 0.7518 – 0.7608
NZDAUD: No let up…
Further moves lower are also likely here. With little by way of economic releases on either front technical trading is likely to see an extension lower with a possible move to 0.7479 throughout this week.
Expected range: 0.7518 – 0.7608
NZDEUR: Ay carumba!
Spanish election results should start to arrive later this morning around 9am NZT. European concerns have not eased at this point but may be balanced by impending US budget deadlines that appear unlikely to be met. The lower NZD should see this cross ease further towards 0.5510 this week.
Expected range: 0.5555 – 0.5615
NZDJPY: Still lurking around support…
Little by way JPY moves leaving the NZD to do all the work on this cross. While support levels hold they are likely to be taken out this week and deliver a move into the low 57JPY area.
Expected range: 57.95 – 58.95
NZDGBP: Continuing the move…
A similar theme on this cross with the NZD leading the way. Expect further moves lower towards the next level of support at 0.4754.
Expected range: 0.4754 – 0.4799
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