Wednesday 23rd November 2011
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CURRENCY: Again little relief is likely for the NZD which remains up against the ropes and continues to take solid blows on the chin. It has not yet wilted through the key support level of 0.7437 at this point.
RATES: Quiet night with no kiwi trades. Initial payside interest was pulled back as global rates rallied. NZ rates are likely to open broadly unchanged.
CURRENCY: Valiant attempts to push above 0.75USD were thwarted overnight as risk aversion levels again lifted. Weaker US economic data and a poor Spanish debt auction meant another dip lower for the NZD.
GLOBAL MARKETS: Headlines out of Europe continued to provide volatility. US equities eased slightly, with a 1% fall in the Euro Stoxx 50 led by larger falls in German, Spanish and Austrian bourses.
US 10-year yields rose 3bp, with larger rises for Italian, Belgian, Greek and Spanish yields. German 10-year yields were unchanged whereas UK yields eased.
The CRB commodity price index gained 0.4%, with silver and gold posting stronger gains and oil prices up 0.6%. Prices for grains fell.
KEY THEMES AND VIEWS
MERKEL: DEBT CRISIS “CAN’T BE SOLVED IN A BIG BANG”. Bond yields in France, Spain and Italy climbed as the absence of progress toward enacting a comprehensive crisis-fighting package and continued dispute over the ECB’s role also rattled investors. The blowtorch is now being directed at Spain, where three-month bills were auctioned at higher yields than in Greece and Portugal. Germany has held firm. Finance Minister Schaeuble has reiterated that the ECB must remain independent, with Merkel’s finance spokesperson Meister noting “we don’t have any new bazooka to pull out of the bag”. Merkel noted the EU will have to make swift treaty changes to deal with the situation, with the December 9 EU summit the next important date.
IMF REVAMPS CREDIT LINES. While Europe and the US dither, the IMF went on the front foot. Its new Precautionary and Liquidity Line can be tapped by countries with strong economies currently facing short-term liquidity needs. Countries with potential needs can also apply, as they did in the past under the Precautionary Credit Line. The changes, which enable countries that pre-qualify to request IMF funds without having to make as many policy changes, are deemed by the Fund to be another step toward creating an effective global financial safety net. The new line can be used under a 12-24 month arrangement, with access under the 6-month liquidity line up to 500% of a members’ quota.
OTHER EVENTS AND QUOTES
• The minutes of the Nov 1-2 FOMC meeting were released early. Reportedly, several members believed there was a case for more easing.
• US ratings reaffirmed. Standard & Poors reaffirmed it would keep the US credit rating at AA+ and Moody’s confirmed its AAA rating with a negative outlook. However, Fitch will conclude a review by the end of the month, with the possibility of a “negative rating action”.
• Fitch targets Spain. The new government will need to take “additional measures” to meet its deficit targets. The Spanish government has called for a European agreement to “save” the nation’s debt, as the country cannot afford 7% interest rates.
NZDUSD: Moving right along…
Pain in Spain is unlikely to deliver any gains to the NZD as it remains pinned against the ropes and attempting to fight off a test of support at 0.7437. Most likely a break of this level will deliver a momentum move that should see the 0.73USD territory visited reasonably quickly.
Expected range: 0.7321 – 0.7497
NZDAUD: Still holding tight…
This cross remains within a tight range waiting on the NZD to break the downside support. Australian troubles are not going unnoticed by offshore investors and any weakness on the Chinese front will exacerbate the problems of the AUD and may well prevent a deeper move on this cross.
Expected range: 0.7555 – 0.7605
NZDEUR: Pains in Spain…
Plenty of issues around Europe with Spanish yields rising and rumours around the credit rating of Belgium. Contagion is close to a tipping point that may see excess cargo dumped from the Eurozone. Further NZD weakness should deliver a more ardent test of support at 0.5510 today.
Expected range: 0.5510 – 0.5555
Similar patterns on this cross with further moves lower likely. The placement of Japanese insurers on CreditWatch negative has marginally weakened the JPY but not to the degree that any reversal of this cross is likely.
Expected range: 56.80 – 57.80
This cross continues on the path to the lower 0.47GBP levels with support at 0.4754 the only obstacle and sticking point holding up due process.
Expected range: 0.4754 – 0.4799
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