ANZ Research
Thursday 15th March 2012 |
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OUTLOOK
CURRENCY: Expect further brutal moves for the NZD as rising US yields provide an opportunity for it to stab deeper through support levels. Most focus today will be around 0.8050 which is well within reach.
RATES: A quiet overnight session for kiwi trades. We expect local yields to open a point or two higher following overseas moves.
REVIEW
CURRENCY: A relatively contained local session yesterday hid overnight potential well. Topside levels were solidly capped by Japanese investors lowering their Australasian exposures.
GLOBAL MARKETS: Positive sentiment continued into the European session overnight, but markets started the US session on a weaker note. There was minimal interest in the dataflow, with some market reaction to the Bernanke speech, where he described the recovery as “frustratingly slow”. The Euro Stoxx 50 gained 0.7%, with the FTSE 100 down 0.2%. The S&P500 was down 0.3% from the previous close at the time of writing. Government bond yields rose in the US, UK, Germany, France and Spain but fell in Italy, Greece, Portugal and Ireland. The 14bps rise in the 10-year US Government bond yield took them to 2.26%, their highest level since October. While the USD strengthened against the euro, NZD, AUD, it fell against the yen, CAD, Swedish and Norwegian krone. The CRB commodity price index fell 0.8%, led by falls for silver and gold. Oil prices fell.
KEY THEMES AND VIEWS
WATCHING NORWAY. The dilemma posed by trying to contain a commodities driven boom, whilst ensuring that the soaring currency does not inflict collateral damage on the economy is not just an ANZAC problem. The 25bp overnight cut by the Bank of Norway (which took the overnight deposit rate to 1.5%) showed that they too are concerned over currency strength, even though the latter is largely beyond their control. Governor Olsen could not be more explicit when he noted “the continuing downturn abroad and the strong krone are contributing to keeping inflation low and are weighing on growth in Norway”. Prior to the rate cut the krone had reached a nine-year high as investors lapped up the higher returns offered by AAA rated Norway, and while the krone has eased a touch since then it may only be a temporary respite. The cut is not without risk as it will create imbalances, and fuel an already overheated housing market, which is the biggest domestic threat to the economy, according to Norway’s Finance Supervision Authority.
OTHER EVENTS AND QUOTES
• The Italian Treasury sold €5bn of a new 34 year bond at an average yield of 2.76% (versus 3.41% for the last sale of a similar maturity), the lowest yield since October 2010.
• The German Cabinet approves legislation to help set up the euro-area’s permanent rescue fund (the ESM). It will now go to parliament for ratification by June 15.
• Latest stress tests by the Fed show that 15 of the 19 US bank’s would be able to maintain capital levels above a regulatory minimum (at least 5% of tier 1 capital) in an “extremely adverse” economic scenario.
NZDUSD: The ides have it…
Topside levels look to have been well lowered overnight as the search for alternative investment propositions took out support. While the NZD remains below the 200 day moving average the potential to extend lower increases. Today’s target of 0.8050 is well within reach.
Expected range: 0.8050 – 0.8110
NZDAUD: Cut down…
Another failure above 0.78AUD should not be a surprise when yield is all important to the investment community. This cross may have to spend further time base building at lower levels meaning a move lower from here is possible today.
Expected range: 0.7720 – 0.7760
NZDEUR: Betrayed…
Another cross that dropped all too easily through short-term support levels in overnight trading. At this stage this cross continues to hold above a more medium term support zone (0.6170-0.6180) but could easily test this on further erosion of NZD support.
Expected range: 0.6185 – 0.6235
NZDJPY: More important…
Having fourth failed attempt at breaking through 68.30 yesterday signifies this level as an all important one. Japanese investors lowering their NZD exposure around that level yesterday increased the likelihood of a reversal. Today support may kick in around the low 67JPY level.
Expected range: 67.20 – 68.00
NZDGBP: Rising troubles…
Concerning US unemployment data did not out weigh the moves of the NZD. Support levels were taken out and a deeper move is possible today.
Expected range: 0.5120 – 0.5170
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