Economic views and news - Friday, 2 March '12

ANZ Research

Friday 2nd March 2012

OUTLOOK

CURRENCY: Expect resistance in the NZD on the topside as the hangover from the ECB LTRO lingers in the market. Getting back above 0.84USD will not be an easy task while the EUR and AUD languish.

RATES: Although trading was quiet in London, yields were market higher, so expect the local market top open higher this morning.

REVIEW

CURRENCY: Support gave way early and easily yesterday as the NZD tracked lower with the AUD but lagged the moves of the EUR. Familiar demand emerged in the low 0.83USD are to help ensure a minor lift.

GLOBAL MARKETS: The euro is still reeling after yesterday’s heavy sell-off, pushing below 1.33 before stabilizing a tad higher. In contrast, both the AUD and NZD have recovered somewhat, with the Kiwi currently attempting to push above 0.8400. And while soft UK PMI figures weighed on the Sterling, supportive comments from BoE MPC member David Miles (in particular, that aggressive loosening of monetary policy now may help the economy and make it easier to normalize rates sooner) generated a small boost. European equity markets were up, as are US markets. But the rout in bond markets continues, as does the apparent dissatisfaction with the lack of explicit mention of QE at Bernanke’s second day of testimony. Interestingly, Italian 10yr bond yields are around 24bps lower, reflecting confidence that LTRO funds might be circulating and successful French and Spanish bond auctions. In commodities, gold struggled to move much above USD1720/oz, although WTI crude in back above USD107/bbl and Brent just below USD124.550/bbl.

KEY THEMES AND VIEWS

BERNANKE TESTIMONY LARGELY ECHOES YESTERDAY’S SENTIMENTS. Fed Chairman’s second day of testimony (this time before the Senate Banking Committee) reiterated that policy would remain easy, but stopped short of offering up any sign that QE3 might still be forthcoming. This has just added to the market’s disappointment. However, as we pointed out yesterday, the tone of his testimony is still pretty sobering, with inflation in check, and the unemployment rate unacceptably high, the hurdle for further QE remains low, although it may be premature to dismiss it. Time will tell – all eyes now turn to non-farm payrolls (out next week) for the next read on unemployment.

UPBEAT US DATAFLOW TAKES A BREATHER. At times over the past few weeks it has seemed like US data has done nothing but surprise to the topside. However key ISM manufacturing were a disappointment, which was particularly surprising after the strong run of regional PMIs over the past week or two. The drop in the headline series to 52.4 was also echoed in the partial data, with new orders slipping 2.7pts to 54.9 and employment down 1.1pts to 53.2. That said, perhaps the weak USD is having an impact, with export orders up 4.5pts to 59.5. In other news, income and spending numbers also fell short of expectations, but the weekly claims numbers printed broadly in line. And while construction spending was virtually flat in January, there were some decent upward revisions to the historic data.

OTHER EVENTS AND QUOTES
• The International Swaps & Derivatives Association (ISDA) has ruled that the Greek debt swap is not a credit event, thereby determining that holders of Greek CDSs will not receive a payout.

NZDUSD: Underlying support…
Demand for the NZD is likely to remain in the low 0.83USD area today and not chase the market at this point. Attempts to move back into the 0.84USD zone may take place but they will require assistance from a stronger EUR and AUD which currently have their own issues to face.
Expected range: 0.8350 – 0.8420

NZDAUD: Easing back…
Little by way of differentiating factors for this currency pair to finish off the week. Anticipation of the RBNZ MPS next Thursday should see support at 0.7750 hold on any initial test.
Expected range: 0.7750 – 0.7800

NZDEUR: Cleaning up…
Having digested the ECB’s second three year LTRO markets are now looking elsewhere for direction. This cross should remain within the range today as some focus may return to economic fundamentals.
Expected range: 0.6270 – 0.6320

NZDJPY: No change…
With no real momentum at this stage to break higher through 68.30 this cross will find itself lurking around the 68JPY level today. Expect next week’s RBNZ MPS however to assist with a break through 68.30 although momentum may not be enough to reach the next target of 70.28.
Expected range: 67.60 – 68.30

NZDGBP: Little engine…
The GBP remains the little engine that could not as it approaches the 1.60USD level. An inability to break through this level will slow up further tests of support for this cross.
Expected range: 0.5240 – 0.5290

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