Economic views and news - Tuesday, 28 February'12

ANZ Research

Tuesday 28th February 2012

OUTLOOK

CURRENCY: The NZD should continue to bubble along today looking to test the topside resistance zone of 0.8380-0.8420 as markets await the results of the second ECB LTRO.
RATES: After a quiet London session NZ rates are likely following the slight drift lower globally and be 1-2 points lower in yield.

REVIEW

CURRENCY: A test of support overnight for the NZD saw it continue to find willing buyers as the AUD also bounced from key levels. Australasian currency demand lifted in the late European session.

GLOBAL MARKETS: A wobbly old night. Risk lower and fixed income initially higher following G20 comments over the weekend. The JPY recovered against the USD – when you fall 6 percent in a month a degree of recoil is inevitable. The euro eased and was not helped by Standard & Poor’s revising the outlook for the EFSF to negative. European bourses were under pressure following the Asian session and the weekend’s political angst over the need to Europe to do more before the IMF’s coffers will open. Once the US equity market opened, sentiment improved with better data helping with a bid tone. US Treasury bond yields fell, WTI crude down $1 and gold up smalls. Choppy markets prevail for now.

KEY THEMES AND VIEWS

STEPPING BACK. Looking at developments overnight I sat pondering for quite a while what to write about for we seem once again stuck in that Groundhog Day scenario of choppy moves where the only clear trend is the lack of one. The usual tensions and suspects driving intra-day movements remain.

Better US data in the form of pending sales of existing homes extended the run of reasonable US data. It’s encouraging but bare in mind that when you are at lows it doesn’t take much to bounce.

Conversely, Italian business confidence unexpected declined to a 2-year low – a fourth recession since 2001 beckons, somewhat akin to Japan. You can read little into such Trans-Atlantic data in isolation but it certainly does little to dispel the belief that a massive growth divide is opening up between the US and Europe.

Political angst continues to drive sentiment: Merkel won the second Greek bailout vote, and reportedly without relying on opposition parties but amidst polls saying the German public say no. Leadership is prevailing over populism.

Throw in the usual curve ball from rating agencies, with Standard & Poor’s revising the outlook on the EFSF to negative (one wonders what happens if some key participants receive a downgrade beyond AA+), uncertainty towards what this weeks LTRO will bring (is cheap funding positive for risk and the euro or negative as a form of quantitative easing?) and you have the usual cocktail for directionless movements.

So amongst all the hurly burly of global developments, it is probably better to say nothing. The fact is has taken more 20 odd lines to do that probably means I’ve been working too many years as an economist.

OTHER EVENTS AND QUOTES
• Merkel on the potential for a failure of the Euro endangering the EU and global economy: “I think those risks are incalculable, and therefore indefensible,” [As chancellor], “I should and have to take risks, but I cannot embark on adventures. My oath forbids that.”

NZDUSD: Trading higher…
Demand remains in place for the NZD as it looking to take on the familiar resistance zone (0.8380 - 0.8420) today. With no results from the ECB’s LTRO until later this week breaking above this zone may again prove to be too difficult at this point.
Expected range: 0.8350 – 0.8420

NZDAUD: Dumped…
Resistance at 0.7830 has again held and should remain in place today. The economic calendar remains empty today ensuring this cross continue to trade within recent ranges.
Expected range: 0.7770 – 0.7830

NZDEUR: Avoiding a real test…
Despite a further marginal dip overnight this cross avoided a real test of support at 0.6177. Instead demand for Australasian currencies ensured it reversed a large portion of the previous trading session losses as many realise the ECB’s LTRO is not being undertaken because of desire.
Expected range: 0.6227 – 0.6277

NZDJPY: Topside too tough…for now…
Resistance at 78.30 held comfortably yesterday. It should remain well out of range for markets today as this cross looks to remain within the 67JPY zone today. Buyers under 67JPY remain in waiting should some deeper correction to recent JPY weakness take place.
Expected range: 67.10 – 68.10

NZDGBP: Back on track…
With little by way of movement on the GBP side of this cross the NZD moves have lifted it back towards 0.53GBP. A move back above 0.53GBP is unlikely to be maintained if any positive UK economic data can be found.
Expected range: 0.5270 – 0.5310

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