Economic views and news - Wednesday, 8 February '12

ANZ Research

Wednesday 8th February 2012

OUTLOOK

CURRENCY: Further attempts towards the topside look likely as the Greek bailout expectations reach a crescendo. Key resistance at 0.8380 remains in place but may well be knocked on throughout today’s local session.

RATES: Expect rates to move up given global moves, especially Australia, where rate cut expectations have been pared back by 30bps since Friday.

REVIEW

CURRENCY: A consolidation day for the NZD yesterday as buyers became active in a more aggressive manner after the RBA’s decision to remain on hold. Overnight little by way of dips were seen in the offshore market.

GLOBAL MARKETS: Another quiet news and events day on European and US markets. That said, sentiment was boosted by headlines that Greek officials are working on a draft agreement on the Troika’s bailout conditions ahead of a meeting of Greek political leaders in the coming hours. This has generated the biggest moves in FX markets: EUR/USD has rallied to above 1.3250 for the first time since early December, dragging other currencies higher against the USD. AUD/USD has recovered back above 1.08, although it has lost some of yesterday’s post-RBA shine versus the NZD. WTI crude oil rallied on the back of the weaker USD, and gold is higher, as are bond yields, with major economy (US, UK, Germany) 10-year sovereign bond yields 6-7bps higher. The Swiss reiterated that they would defend the EUR/CHF floor.

KEY THEMES AND VIEWS

BERNANKE REITERATES CONCERNS. Although Fed Chair Ben Bernanke did not explicitly mention Friday’s better than expected unemployment data, today he reiterated remarks made to the House Budget panel last week. In testimony to the Senate Budget Committee he said that “We still have a long way to go before the labor market can be said to be operating normally”, adding that “Particularly troubling is the unusually high level of long-term unemployment”. Well, quite. Of course, this doesn’t mean we can simply ignore last week’s data, and assume Bernanke has too, but the point is, if the trend rate of decline in unemployment continues, it will still take a couple of years to get to 7%. To paraphrase Bernanke again, this pace has been “frustratingly slow”, and it is the lack of momentum behind the improvement that probably still troubles him. As noted, he did not explicitly acknowledge last week’s data, but you have to conclude that if it materially changed his view, he would have changed his testimony, but he didn’t. Nonetheless, US Treasury yields rose overnight, with newswires ascribing the rise to progress on Greek talks.

RBA LEAVES CASH RATE UNCHANGED. It’s almost old news given that it happened on our market close yesterday, but it’s worth pointing out what the RBA said, as well as what they did (or did not as in this case!). The final paragraphs of the RBA statement suggest they’re in a comfortable place, noting that business credit has picked up, and house prices were stabilising. Perhaps more importantly, inflation set to remain on target, and while they have a clear easing bias, it is conditional on demand weakening materially. So we’re back to data watching, and we may well be in for a bit of a cleanout of the “lifestyle” assumption that central banks in our part of the world might have to ease. Au contraire, they seem very comfortable with policy settings.

NZDUSD: Looking lively…
Expectations run high for news around a Greek bailout package today. Care should be taken in any announcement given it is the implementation that really counts. Europhoria should see key resistance at 0.8380 under threat at some point today.
Expected range: 0.8310 – 0.8380

NZDAUD: Topside capped…
No change by the RBA accentuated the fall on this cross yesterday. Overnight NZD buying interest increased with support above 0.77AUD ensuring little chance of a move under that level. Today similar trading is likely although moves closer to 0.7700AUD are not likely.
Expected range: 0.7715 – 0.7775

NZDEUR: Europhoria…
Expectations on the European front are almost at fever pitch ensuring the EUR is making ground against most currencies. Further falls on this cross are likely today as the NZD lags behind.
Expected range: 0.6275 – 0.6315

NZDJPY: Breaking up…
The search for yield is helping to lift this cross and provide more room on the topside. Expect further moves higher although getting past 65JPY will not be an easy task at this point.
Expected range: 63.90 – 64.60

NZDGBP: Waiting…
A longer wait is needed in the lead up to the Bank of England’s decision this week. Expectations of an increase in the amount of asset purchases could see further attempts on 0.53GBP although current EUR strength is helping to lift the GBP and stifle attempts to move higher.
Expected range: 0.5255 – 0.5295

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