Economic views and news - Thursday, 15 September

ANZ Research

Thursday 15th September 2011

OUTLOOK

CURRENCY: Interesting day for the NZD ahead as the RBNZ Monetary Policy Statement and the surrounding comments should guide direction. Expect a difficult road on the topside closer to the current 0.8280 resistance level.

RATES: Expect rates to open higher on the back of global moves, and after trading a touch higher in London trading. But we’ll tread water ahead of the MPS.

REVIEW

CURRENCY: Further dips below 0.82USD were supported overnight as the moves in the NZD were weighed down by the weaker AUD. An extension higher against the AUD was capped at 0.8050 overnight as sellers entered the market.

GLOBAL MARKETS: More volatility, which started with the Moody’s downgrade of French banks Credit Agricole and Societe Generale. Interestingly, the fact that these downgrades were only one notch was viewed as something of a relief, and the banks’ shares actually did ok.

Later in the session the market reacted negatively to a headline that Austria had not approved the EFSF changes, only later clarified that it had not approved a scheduling issue, ensuring a big recovery bounce.

Data releases had a very limited impact on action. European equities closed up 1% to 3.4% and EURUSD rallied. AUD and NZD lost ground as the after effects of yesterday’s downward revision to Australian core CPI estimates continue to linger.

KEY THEMES AND VIEWS

FRANCE AND GERMANY PLEDGE TO SUPPORT GREECE. French President Sarkozy and German Chancellor Merkel have now concluded their conference call with Greek PM Papandreou, and have vowed to support Greece, with the French statement noting that they “are convinced that the future of Greece is in the euro zone”.

During the call, Merkel and Sarkozy also stressed that Greece must adhere strictly to the austerity pledge it made as part of the bailout. A spokesperson for Merkel said that “That is a prerequisite for the payment of future tranches of the program”, adding that “the Greek prime minister has reaffirmed the absolute determination of his government to take all necessary measures to put into practice given commitments in its entirety”.

Things are certainly heating up in Europe – US Treasury Secretary Geithner is heading to Poland this week to attend a session of the EU’s Economic and Financial Affairs Council.

ALL EYES ON THE RBNZ AT 9AM. At issue will be the RBNZ’s view on how much impact global uncertainty will have on the domestic outlook. To be sure, we expect no change to the OCR today – but of course it will be the tone of the MPS and technical aspects like the 90 day bill track that matter.

Our feeling is that were it not for the deteriorating global outlook and financial market volatility, the RBNZ would be today removing the 50bp insurance cut taken out in March. We still believe the current level of the OCR is on borrowed time, given the improving momentum in the NZ economy and clear inflation pressures. But the RBNZ will want greater clarity around the global situation before deciding to hike rates.

As such, we see the RBNZ maintaining a clear tightening bias, but the removal of the insurance cut will very much be dependent on global financial risks receding, even if this means taking a chance on inflation.

OTHER EVENTS AND QUOTES
• European Commission President Jose Barroso: “The commission will soon present options for the introduction of euro bonds”, adding that “some of these options could be implemented within the terms of the current treaty; others would require treaty change”. German politicians and officials continue to voice their discontent over euro bonds. We will see.

NZDUSD: Fall back…
The RBNZ OCR/MPS this morning is likely to have most attention placed on the surrounding comments. Yes the global landscape is troubling for all central banks however their mandate is primarily around their own patches. This patch is looking relatively better and comments to this effect may see the NZD attempt topside moves. These moves however should be limited by resistance currently around 0.8280.
Expected range: 0.8155 – 0.8280

NZDAUD: Blind side…
The AUD was tackled by Australian data released yesterday and this did enable a look at levels above 0.80AUD. With sellers looking at the mid to high 0.80AUD level expect this cross to have limited ability to move higher today.
Expected range: 0.7980 – 0.8050

NZDEUR: Bond to the rescue…
Eurobond that is. The mere mention of a Eurobond has helped the EUR gain some ground on the NZD. Today’s moves will again be limited by resistance around ht e0.6038 level which remains firmly in place.
Expected range: 0.5960 – 0.6038

NZDJPY: Grubber kick…
A dip closer to the mid 62JPY zone is unlikely today as the RBNZ maintains the level of interest rates and looks at relative performance. Expect any move towards 62.60 to find NZD buyers.
Expected range: 62.60 – 63.55

NZDGBP: Phase…
This cross is experiencing technical difficulty in getting above a familiar resistance line. While this resistance line is lowering daily it will make the job of moving higher difficult but not impossible.
Expected range: 0.5182 – 0.5222

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