Thursday 22nd March 2012
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CURRENCY: A further lowering of the topside cap for the NZD is likely again today despite a relatively positive Q4 GDP release expected today. Demand for the NZD is positioned under 0.81USD at this point.
RATES: A quiet UK session overnight with few trades. With the US and Australian curves flattening we could see a similar occurrence in the local market today.
CURRENCY: Attempts to move above yesterday’s 0.8200 resistance level were short lived as the NZD further explored support levels overnight. Commodity price weakness and weaker equity markets all assisted.
GLOBAL MARKETS: A relatively quiet session over night in the rates market. Equities were choppy, with the Euro Stoxx 50 down 0.4% while the FTSE 100 rose 0.5%. The S&P500 was down 0.1% from the previous session at the time of writing. US Government bond yields eased and the curve flattened, with UK, German and French yields lower. Italian yields moved higher despite PM Monti winning a confidence vote in the lower house (449-79) for his proposed reforms. The AUD and NZD remained out of favour, slipping further against the EUR and USD. Higher prices for crude oil and precious metals were offset by lower prices for soft commodities.
KEY THEMES AND VIEWS
UK BUDGET MAINTAINS AUSTERITY DRIVE. With their AAA rating at stake the pressure was on the UK Government to deliver a fiscally responsible budget that did not threaten to scupper the UK recovery. The Budget projections were for Public Sector Net Borrowing to fall from 11.1% in 09/10 to 4.3% in 14/15 and 1.1% in 2016/17. Public sector net debt is forecast to peak at 76.3% in 2014/15 before easing thereafter. It pushed the tough spending message, with benefits and pensions in the firing line. Cognisant of the need to promote growth, the Budget sought to rebalance the tax system to encourage income generation with cuts to the top personal tax rate (from 50 to 45%) in 2013 and corporation tax (from 25 to 24%). Taxes on spending will be going up, with higher excise duty, and higher levies on expensive property sales. With the UK Budget deficit around 8% of GDP, and with February data highlighting a sluggish tax take, the UK authorities have their work cut out for them. The Office for Budget Responsibility noted that the Budget policies were consistent with a roughly 60% chance of achieving the Government’s fiscal mandate in 2016/17. Time will tell.
OTHER EVENTS AND QUOTES
• UK public sector net borrowing (ex-banking sector support) was significantly higher than expected at £15.2bn in February, the highest February on record. The annual budget deficit is currently running at £110bn.
• Minutes of the March 7-8 MPC meeting showed that Posen and Miles maintained their push for ₤25bn more stimulus than the current ₤325bn target. However, BOE Chief Economist Dale noted that inflation may not slow as quickly as forecast given risks from oil prices.
• Greek Prime Minister Papademos wins parliamentary approval for the new €130bn bailout, with the vote 213-79.
• Iceland’s central bank raised the seven-day collateral lending rate by 25pbs to 5%.
NZD/USD: Taking it easy…
The global picture is likely to weigh on the NZD again today keeping it well away from resistance around the 200 hour moving average (0.8194). It remains in with a chance of further investigating key support levels currently around 0.8080 but not today.
Expected range: 0.8110 – 0.8170
NZD/AUD: Spectator sport…
This cross continues to look for differentiating factors in order to deliver more sustainable moves higher. The interest rate differential in favour of the AUD is enough at this point to ensure attempts to move above 0.78AUD remain fragile and short lived.
Expected range: 0.7760 – 0.7820
NZD/EUR: Cracks widening…
Support levels continue to be probed on this cross despite the EUR finding local issues that it has to deal with. At this point deeper moves are still likely although today support around 0.6145 should hold.
Expected range: 0.6145 – 0.6185
NZD/JPY: Taking stock…
This cross continues to have mild downside possibilities as markets assess their positioning. Support around 67.66 has not yet been reach and today it would require a subpar performance on the local data front to achieve.
Expected range: 67.66 – 68.36
NZD/GBP: Taxing times…
Last night’s UK MPC minutes, Budget and economic releases were not enough to dent the relative fortunes of the GBP. This cross moved to support levels overnight and today may consolidate around them.
Expected range: 0.5125 – 0.5155
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