ANZ Research
Tuesday 20th September 2011 |
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OUTLOOK
CURRENCY: Expect another day on struggle street for the NZD as it remains weighed down by offshore developments. Support levels should be further tested with a possible extension towards 0.8150.
RATES: Another quiet day for NZ rates during the overnight London session. We are likely to open unchanged today with a bias towards the receive side given the global rally in rates.
REVIEW
CURRENCY: European debt concerns ensured the NZD moved lower during the past trading day. It opens today poised above the key support zone looking for guidance from off the local field.
GLOBAL MARKETS: A heavy risk off session in global markets overnight, with fears over a Greek default sending risk assets lower. European equities as measured by the Euro Stoxx 50 index fell 2.9%, while US equities also saw heavy selling with the S&P500 down 1% at the time of writing. Safe haven flows gravitated towards the usual suspects sending US Treasuries higher in price with the Japanese yen also benefiting. With the Swiss franc no longer a safe haven destination following the SNB’s decision to put a floor on EURCHF at 1.20, a lack of other viable alternatives mean USD is now a default safe haven. USD strength put further downward pressure on commodity prices.
KEY THEMES AND VIEWS
ON A KNIFE EDGE. Failure by European politicians to come up with anything over the weekend clearly disappointed markets, but the severity of the selloff was a surprise. It seems that markets had their hopes raised late last week following the co-ordinated action by major central banks to provide liquidity, only for those hopes to be crushed when there was no follow through from the politicians. So we are back to the same worries once again.
The immediate focus is whether Greece will be able to meet the conditions of the Troika (IMF/ECB/EU) in order to receive the next tranche of €8 billion in bailout funds. At present, Greece has enough cash to last only until mid-October. If it does not receive the second cash bailout, Greece will default, and that is the market’s biggest concern. It all boils down to how strict and rigid the Troika is over the agreed targets. With growth set to be much weaker than initially forecast (what would you expect given the severe austerity being implemented?), hitting the required deficit reduction requires more cuts and tax increases, which lowers growth and we get into a never ending downward spiral.
But even if Greece were to receive the second bailout funds, looking at CDS spreads and where Greek bonds are trading, markets are essentially of the view that a default is imminent. Any relief rally in markets therefore should be treated cautiously. In the end, we need European politicians to step up and make the hard decisions. Anything less is just prolonging the crisis and the clean-up bill will only get larger.
OTHER EVENTS AND QUOTES
• US President Barack Obama has unveiled a plan to cut the deficit by US$3 trillion over ten years, with half of those savings via higher taxes on the wealthy. The plan is unlikely to get support from the Republican controlled Congress.
• ECB Governing Council member Erkki Liikanen: “The risks to economic growth are substantially to the downside. The risks regarding inflation have also changed.”
NZDUSD: Game plan…
A defensive start to the day could well mirror moves of yesterday as the heat continues to build in Greece. The NZD should remain under pressure despite a more positive series of data releases to come later this week.
Expected range: 0.8150 – 0.8218
NZDAUD: Extra time…
Extensions higher on this cross are possible after the release of the RBA September meeting minutes later today. Any hint of a cut to the Australian cash rate from these would see markets attempt to push through 0.81AUD.
Expected range: 0.8005 – 0.8085
NZDEUR: Ankle tapped…
As the pressure mounts on Greece so too does it on the EUR. This should keep the NZD relatively supported and close to the 0.60EUR level. Resistance remains at 0.6038 and this appears unable to be broken at this point. Any spike above it may be short lived depending on the resolution of the Greek issue.
Expected range: 0.5988 – 0.6038
NZDJPY: Crash tackled…
Despite reasonable buying interest on this cross it has dipped back to support in the mid 62JPY region. Without some reversal of the USD fortunes against the JPY (technically unlikely as it remains close to recent lows) then a brief move under 62JPY may eventuate.
Expected range: 62.10 – 63.10
NZDGBP: Forward pass…
This cross appeared to get ahead of itself yesterday and has reversed some of the gains. Overall it remains supported but unable to sustain a move through secondary resistance around 0.5250 at this point.
Expected range: 0.5200 – 0.5250
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