ANZ Research
Wednesday 28th March 2012 |
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OUTLOOK
CURRENCY: Another day where overnight highs are unlikely to be repeated as the NZD consolidates further. Increasing questions on the Australian yield front may well dent the fortunes of the NZD but only marginally at this point.
RATES: Local yields are expected to be biased lower following similar moves offshore. The curve should also flatten a touch.
REVIEW
CURRENCY: A quiet local trading session for the NZD yesterday. However, overnight offshore demand ensured another squeeze higher before it corrected back closer to yesterday’s levels in US trading.
GLOBAL MARKETS: Mixed night in markets overnight, equities struggled to hold gains and as a result fixed income was better bid. US Treasury yields dropped 6 basis points to 2.19 percent, trimming the monthly gain in yields to 22 basis points. US equities are a touch lower but the Dow Jones and S&P 500 traded between losses and gains during the overnight session. The USD strengthened against 11 of its 16 most–traded peers and moved to 1.33 against the euro. In Europe the Euro Stoxx was back 0.6 percent. German bunds yields declined 6.5 basis points and Gilts were back 7.2 percent. Italian and Spain bond yields increased 8.9 and 2.4 percent respectively.
KEY THEMES AND VIEWS
SPAIN STILL IN THE SPOTLIGHT. Spain’s central–government budget deficit widened to €20.7 billion, or 1.94 percent of GDP in the first two months of the year. This compares with 1.29 percent of GDP for the same period last year. Spanish banks have been using money from the ECB LTRO to buy domestic government debt but this still has not stopped 10-year yields from climbing back to 5.3 percent. Investments by Spanish banks in government debt has climbed to a record €230 billion, a jump of 29 percent since November 2011. Borrowing cost have now risen 42 basis points since the start of March when the Prime Minister Rajoy announced a higher–than–planned budget deficit. This is not helpful at a time when markets are nervous about Portugal and Spain.
GLOBAL BOND MARKET SENTIMENT. Was spurred on by a number of factors overnight, including comments by Boston Fed Governor Rosengren and Bank of England MPC member Miles. Rosengren said the Fed still has more "flexibility", adding that "if real GDP does not grow more rapidly and unemployment remains at its current unacceptably high level, monetary policy may need to be more accommodative". Meanwhile, Miles said he was open minded on the possibility of more QE by the BOE, especially as inflation was "very muted". Bernanke also spoke at George Washington University, reiterating comments yesterday about further progress being needed on unemployment despite recent improvements. He also said that the Fed was instrumental in preventing a deepening of the post GFC recession. NY Fed President Dudley was also on the wires, speaking about Europe. Among other things, he said that Europe had made "meaningful progress", but reiterated that "difficult work still lies ahead", and that he doesn't see the need for the Fed to do more to insulate the US from Europe. All in all, something of a mixed bag in terms of Fedspeak.
NZD/USD: Noisy nights…
More action in the overnight markets that is unlikely to be repeated in today’s trading. With little to focus on the economic front technical trading will continue for the NZD with topside resistance around 0.8270 likely to be out of reach today.
Expected range: 0.8195 – 0.8255
NZD/AUD: Making ground…
Finally this cross is having a more thorough test of resistance at 0.7830. The anticipation of the RBA meeting next week has resulted in market positioning in favour of the NZD increasing. Consolidation around this level is more likely currently as the next topside technical level (0.7961) is some way off.
Expected range: 0.7805 – 0.7855
NZD/EUR: Lock it in…
Counterbalancing moves have this cross remaining within recent ranges. The failure of the EUR to push higher against the USD, despite a flat US consumer confidence release, ensured this cross lifted off support. More of the same is expected today.
Expected range: 0.6140 – 0.6190
NZD/JPY: Another chance…
Resistance on this cross at 68.30 is undergoing a test today. Offshore demand is likely to ensure that it too looks towards the topside. The longer term moving average (10 year at 70.37) is some way off but a move closer to it is possible in the coming months.
Expected range: 68.00 – 68.70
NZD/GBP: Battling on…
Topside resistance has lowered today to 0.5161 and this level may prove too tough to break on the day.
Expected range: 0.5130 – 0.5160
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