Economic news & views - Friday, 03 February '12

ANZ Research

Friday 3rd February 2012

OUTLOOK

CURRENCY: Topside resistance at 0.8380 will be questioned during today’s local trading session. Supply issues for buyers are accentuating the moves as underlying demand remains unsatisfied at this point.

RATES: Very quiet overnight with no kiwi trades in London. Local rates are expected to open broadly unchanged this morning.

REVIEW

CURRENCY: Yesterday’s local session saw the NZD ease back to support around 0.8310. Overnight this level held and very early morning demand for the NZD saw it rocket up closer to the next resistance level.

GLOBAL MARKETS: A generally positive session in markets overnight, although headlines drove some large swings in FX markets. The Euro Stoxx 50 rose 0.3%, the FTSE 100 gained 0.1%, with US equities largely unchanged. Government 10-year bond yields were a mixed bag, with not much change in US, UK and German yields, falls in French, Italian and Portuguese yields (13.75%), and higher Spanish and Greek yields. CRB commodity prices fell 0.4%, with oil prices down 2%.

KEY THEMES AND VIEWS

GREECE STILL IN THE ICU. While supportive comments by EU authorities seem to be deflecting market attention from Portugal, the situation in Greece remains precarious. The Greek PSI remains in limbo, with reports of a German-IMF rift stalling the deal. Paul Krugman has called the Greek situation “essentially impossible”, with default only a matter of time. The OECD has joined the IMF in calling for ‘OSI’, or official sector involvement in the second Greek bailout package negotiations. But the OECD doesn’t believe that the Eurozone’s bailout funds are sufficient, needing “around” €1trn, around double of that earmarked for July.

The OECD also advocates quantitative easing by the ECB to support growth and confidence within the region. With the ECB already providing cheap liquidity to the banks, it is unclear how much of an impact this would have, with Germany keen to protect the ECB’s inflation fighting credibility. Ironically, a sustained period of higher inflation can do wonders in greasing the wheels and eroding debt, although the longer-term costs to the Eurozone economy could be significant. When asked if there would still be 17 euro zone member states at the end of 2012, German Finance Minister Schaeuble commented “I hope so”.

OTHER EVENTS AND QUOTES
·         Spanish and French debt auctions run smoothly. France sold €7.96bn of 6, 8 and 10-year debt, at the top of its planned range. Spain sold €4.56bn of 2015, 2016, and 2017 bonds, just above target. Achieved yields were lower than the previous events.
·         EU'S Rehn: Portugal is making good progress with a programme to enable fiscal sustainability and improve competitiveness.
·         US Fed Chair Bernanke: “To achieve economic and financial stability, U.S. fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or, preferably, declining over time.” “Achieving this goal should be a top priority.”
·         BOE’s Posen backs upping the bond purchase programme: “75 billion was a good slug last time and there’s a case to do it again.”

NZDUSD: Stoking up…
Support again remains around the low 0.83USD area as markets potentially look to the topside today. Local NZ December migration data is unlikely to add further fuel to the fire as markets look to offshore PMI services releases this afternoon and evening.
Expected range: 0.8310 – 0.8380

NZDAUD: Knocking on…
Yesterday’s Australian trade data was above expectations and demand for the AUD resulted. This was not able to stem the topside tests for this cross which is knocking the next resistance level in early morning trading. A nudge into the 0.78AUD is expected as we await the RBA interest rate decision.
Expected range: 0.7772 – 0.7812

NZDEUR: Frozen over…
The NZD is giving the EUR the cold shoulder currently and further record highs are being created as it moves relentlessly higher. A move into the 0.64EUR zone should not take place this week but delays around the Greek debt debacle will keep the cross supported on any corrective moves.
Expected range: 0.6329 – 0.6369

NZDJPY: Testing the patience…
A strong JPY is slowing up progress higher on this cross. The BoJ’s level of patience will be tested should it move into the 75JPYUSD zone. Expect this cross to tentatively move higher.
Expected range: 63.20 – 63.90

NZDGBP: Make way…
Extensions higher on this cross, off the back of NZD strength, are likely. However, it should not break through 0.5300GBP today.
Expected range: 0.5255 – 0.5295

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