Economic views and news - Friday, 13 January

ANZ Research

Friday 13th January 2012

OUTLOOK

CURRENCY: The NZD may have lost its lucky rabbit’s foot after failing to break through resistance at 0.7980 yesterday. Expect support levels to be tested today although a deeper move through 0.7874 may be difficult.

RATES: Another quiet night of NZD rates trading in London. With US Treasury yields a tad higher in yield, expect an upside bias at the local open.

REVIEW

CURRENCY: Failed attempts on the topside were the theme of the past 24 hours. Early morning NZD selling off the back of increasing belief the “end of year effect” may be over ensured initial support levels were broken.

GLOBAL MARKETS: FX markets enjoyed a solid session today on the back of strong sovereign debt auction results for Italy and Spain. Indeed, EUR/USD rallied off yesterday’s lows to well above 1.28. Spain sold €10bn worth of bonds, twice its target, with solid demand and at significantly lower yields than at prior auctions. It was a similar story for the Italian auction. Peripheral Eurozone sovereign bond yields fell as a result, with Italian 10-year yields down a staggering 36bps on the day. However, while equities initially rallied strongly, the fact that the ECB offered no hints of future policy easing soon saw stock prices slip back towards the day’s starting points.

KEY THEMES AND VIEWS

EURO SENTIMENT REBOUNDS – BUT FOR HOW LONG? All hail the euro. Well, maybe not quite, but the lack of a rate cut together with more upbeat comments from Draghi halted the euro’s slide overnight, and as noted, fringe bond auctions went well. Of note, Draghi said that “according to some recent survey indicators, there are tentative signs of stabilization of economic activity at low levels”. And although he was non committal about future moves, Draghi took a leaf out of the Fed’s book, saying that “the monetary stance is and will remain accommodative”, adding that “we will monitor all developments and stand ready to act”. The market also warmed to Draghi’s comments that recent liquidity operations had been a success, providing "a substantial contribution to improving the funding situation of banks, thereby supporting financing conditions and confidence", and on tentative signs that economic activity was stabilising in the euro area. But beware the skeletons in the closet – Fitch said Italy faces a “self-fulfilling liquidity crisis” and needs more help from the ECB, adding that it will conclude its assessment of Italy by month-end, and rumours of a French downgrade continue to circulate.

US/UK DATA DISSAPPOINTMENT, BOE STANDS PAT. Softer than expected US retail sales and weekly jobless claims data saw US Treasuries rally, but only briefly, and stocks are little changed at the time of writing. Weak UK industrial production figures were ignored, and the Bank of England left policy unchanged as expected, meaning we will need to wait another two weeks for the meeting minutes to learn the content of policy discussions.

OTHER EVENTS AND QUOTES:
• Japan sides with the US over Iran. China wouldn’t have a bar of sanctions against Iran, but US Treasury Secretary Geithner has had some success with Japan, who today said that “We want to take concrete steps to reduce our share [of Iranian oil imports] in an orderly way as soon as possible”, adding that “The world cannot tolerate nuclear development”.

NZDUSD: Under the ladder?
Having moved up since mid December area the end of year effect may be waning. The NZD potentially could be looking at the other side of the ladder and looking to ease off from here. Underlying demand should cushion any falls on the day with moves below 0.7900 a hard ask at this stage.
Expected range: 0.7895 – 0.7965

NZDAUD: Tripped up…
NZD selling interests under the mid 0.77AUD zone were enough to cap things on this cross. Today it may have difficulty in getting back into the 0.77AUD zone with little local data to trade off.
Expected range: 0.7665 – 0.7705

NZDEUR: Correction time…
Having reversed from recent record levels this cross should look for further corrective moves today. Expect initial support around 0.6165 to be tested at some point going into the long US weekend.
Expected range: 0.6165 – 0.6205

NZDJPY: Stationary…
NZD moves dominated this cross again with support levels being the ones questioned. More of the same is likely today with an extension towards support initially at 60.50 expected.
Expected range: 60.50 – 61.20

NZDGBP: Struggling…
No change from the BoE overnight in the amount of the asset purchase programme or interest rate left the NZD calling the moves. Expect an easing on this cross today towards support.
Expected range: 0.5135 – 0.5180

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