Thursday 19th January 2012
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CURRENCY: An interesting day ahead for the NZD with local and offshore data likely to disappoint many looking for surprises. A look into next week is warranted given the upcoming Chinese New Year celebrations.
RATES: A quiet overnight London session. Kiwi rates are expected to open today’s session broadly unchanged.
CURRENCY: Technical levels failed to hold the NZD in the overnight session as demand continued to grow. Any dips were well supported and ensured the NZD was not able to dip back below the 0.80USD level.
GLOBAL MARKETS: A very choppy night in markets. Equities fell on disappointing US financial earnings and a cut to the World Bank’s global economic forecast, but then rose on some decent US data, ending with US equities up 0.8 percent but the Euro Stoxx 50 down 0.3%.
Bond yields were mixed. Spanish and German bill auctions went well and Italian yields fell, but French and Portuguese yields rose. Commodities were a mixed bag, with oil prices losing early momentum to end up only slightly.
KEY THEMES AND VIEWS
IMF SEEKS MORE CASH. The IMF announced it wants to raise its lending capacity from $385bn to $885bn. An excellent idea, undoubtedly. But where is the cash going to come from? The G20 couldn’t agree on more contributions last year. The old model, where Western nations loaned money to developing nations in a spot of bother, has been turned on its head. Euro nations have pledged more, but they’re clearly in no position to be shouting anyone a rescue.
China, Brazil, Russia, India and oil nations can expect a knock on their door. It had better be a good sales pitch. If Western nations benefited from IMF largesse in earlier decades through increased market access to developing nations in return, they can now expect demands for greater clout in international decision-making bodies in exchange. Altruism tends to be in short supply when it comes to international agreements.
US DATA ON THE RIGHT SIDE OF THE LEDGER. Industrial production rose 0.4 percent, after gains to demand for business equipment, cars and construction materials. Capacity utilisation rose, as expected, and the producer price index fell slightly. Confidence among homebuilders rose to a four year high, soundly beating expectations. However, how long can the data continue to surprise on the upside? The first signs of flow-through from the European slowdown are becoming evident in falling US exports.
OTHER EVENTS AND QUOTES
Greece nears deal with private creditors. “Sources” suggest a deal is near that would entail roughly a 70 percent loss in net present value terms. Phew, the euro is saved. Now how long before Portugal and Ireland line up for their debt relief?
World Bank downgrades forecasts. In its six-monthly update the World Bank slashed its global growth forecast for 2012 from 3.6 to 2.5 percent – the largest cut to its forecasts in 3 years. The euro area is forecast to contract 0.3 percent, rather than rise 1.8 percent. The US outlook was also cut, from 2.9 to 2.2 percent. The World Bank commented that “even achieving these much weaker outturns is very uncertain.”
NZDUSD: Stepping higher…
Further technical challenges lie ahead for the NZD but underlying demand continues to assist the drive higher. An extension towards the next level (0.8183) is possible, but on the day local and offshore data is likely to ensure a break above 0.81USD remains too difficult.
Expected range: 0.8022 – 0.8097
Active reversals of AUDNZD positioning overnight helped to deliver the break on the topside for this cross. The 200 day moving average (0.7716) should now form a base for this cross, opening up a move towards 0.7830.
Expected range: 0.7725 – 0.7785
NZDEUR: Chin up…
A look at the 0.63EUR level still remains a difficult task for this cross as the EUR lifts off recent lows. Expect a similar trading pattern today with sellers of NZD as the 0.63EUR level approaches helping to cap things.
Expected range: 0.6240 – 0.6300
NZDJPY: Making gains…
With NZD continuing to do all the heavy lifting on this cross an extension towards the 200 day moving average (63.05) is possible in the coming week. Much attention should fall on the upcoming Chinese New Year celebrations next week, which will take some liquidity from the market.
Expected range: 61.55 – 62.25
NZDGBP: Resting up…
The road here is surprisingly difficult despite poorer UK employment data overnight. Expect gains on the day to be capped out around 0.5250.
Expected range: 0.5218 – 0.5248
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