Morning FX thoughts - 15 Feb '12

ANZ Research

Wednesday 15th February 2012

OUTLOOK

CURRENCY: Expect a lower topside cap in place for the NZD today as the EUR struggles to hold ground and the AUD looks ripe for a deeper move. NZD sellers may well ensure it does not approach the 0.8350 level today.

RATES: Quiet night in kiwi overnight. We expect the NZ curve to open broadly unchanged.

REVIEW

CURRENCY: Moody’s review yesterday of 9 European sovereign ratings was enough to point the NZD lower. It failed overnight to make any headway as the EUR remained close to key support levels.

GLOBAL MARKETS: Markets on the back foot early on, but one that didn’t really extend too far. European equities closed down around 0.2-0.3 percent on the day, US stocks are trading down by a similar amount at the time of writing, and FX markets are little changed on the day apart from a marginally weaker euro. USD/JPY extended yesterday’s gains after the Bank of Japan announced a short-term inflation target of 1 percent and JPY10trn worth of extra funds set aside for more quantitative easing. US Treasury yields eased on weaker retail sales.

KEY THEMES AND VIEWS

OLD NEWS BECOMES NEW NEWS…..TEMPORARILY. European and US markets suffered a heavy open following yesterday’s announcement that Moody’s had cut its sovereign ratings of six euro zone nations (Italy, Spain – by 2 notches, Portugal, Slovakia, Slovenia and Malta), and put France, Austria and the UK on negative outlook. Of course there is nothing really new in this, with Standard and Poor’s taking similar action last month and actually stripping France and Austria of triple A status, but markets will be markets. Encouragingly, Italian and Spanish auctions shrugged off the news with yields continuing their receding trend of late and after the dust has settled we see equities down smalls and risk metrics such as commodities, the NZD and AUD the same. Sifting between the tea leaves we are once again in a holding pattern waiting for confirmation or denouncement of the bailout pack for Greece. The latter received support, with the Party of European Socialists (a group with 162 out of 736 seats in the European Parliament) announcing their rejection of the Greek austerity plan and proposal to set up their own shadow ‘Troika’. We look set to wait a little longer with late session news that the planned meeting of Eurozone Finance Ministers in Brussels will be replaced by a conference call. It seems not all the paperwork is ready, which means there are outstanding issues.

DATA WRAP. US retail sales printed solidly with marginally weaker headline figures offset by better core though with revisions (lower) to back data. The “weaker” interpretation appeared to dominate though our read of this is that following generally good US data of late, the bar has been raised somewhat. The ZEW survey for Europe and Germany were healthy, suggesting a firm investor base has developed though we really need to see such trends extend into the next weeks IFO survey.

OTHER EVENTS AND QUOTES
• Philly Fed President, Charles Plosser – non voter on the FOMC: Fed probably will raise rates before late 2014……no need for further policy accommodation since economic conditions improving.

NZDUSD: Consolidation continues…
Despite a slightly deeper move yesterday and overnight the NZD remains in a consolidation phase. Medium term support levels continue to advance, around 0.8266 currently, but should remain out of reach in trading today.
Expected range: 0.8285 – 0.8355

NZDAUD: Pushing higher…
This cross continues to eek out marginal daily gains as it slowly works through NZD selling interests. It will not be an easy road higher, nor perhaps a fundamentally justified one, so today do not expect any sustained move above 0.7805AUD.
Expected range: 0.7755 – 0.7805

NZDEUR: Short changed…
Greece is having to detail the spending cuts required before a broader acceptance of the numbers is achieved. The scepticism is helping to keep the EUR weak and maintain the path of this cross.
Expected range: 0.6300 – 0.6350

NZDJPY: Sleeping giant…
A no change of the Bank of Japan interest rate was accompanied with another JPY10 trillion of QE. USDJPY broke through the 200 day moving average assuring this cross of further gains. This should lead to further moves higher for this cross.
Expected range: 64.90 – 65.60

NZDGBP: Knocked up…
The attempts on resistance at 0.5305 should continue today given the relative comfort BoE MPC members have with the additional QE.
Expected range: 0.5285 – 0.5315

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