Eyes on the Local Scene

The NZ dollar may well trip up on local releases today as developments in the secondary finance market are awaited, says the ANZ’s head of market economics and strategy Khoon Goh.

“Expect similar topside levels to cap while support levels look more vulnerable at this point,” he says.

RATES:  Global rates rallied, which should see the NZ market open with an offer tone.  Recent pressure to steepen the swap curve should continue.

REVIEW

CURRENCY:  “Attempts to the topside were dealt with early yesterday as the AUD failed to push higher.  Limited Japanese changes meant the JPY fell back into a familiar strengthening mode as the UK holiday thinned trading.”

GLOBAL MARKETS: “ US and European equities fell into the red, as slightly weaker than expected US personal income growth weighed.  Investors were not reassured by comments from US President Obama, and this saw safe haven demand for US bonds, resulting in the 10-year yield falling to 2.54%.  Oil prices retreated below US$75/bbl.”

KEY THEMES AND VIEWS

BOJ FORCED INTO ACTION, BUT MARKET NOT CONVINCED. 

“Yesterday’s emergency meeting at the BoJ had the market rumour mill running.  Following months of trying to jawbone the yen lower, there was speculation that the Japanese authorities may finally take direct action. 

“The fact that the London market was closed meant that it would have been an opportune time for intervention, and the yen weakened in anticipation.  But intervention did not occur, and instead, the BoJ opted to ease policy by providing more cheap loans to banks.  This immediately saw the yen strengthen, much to the chagrin of policymakers. 

“The tough talk continued, but the market is not having any of it.  The difficulty for the Japanese policymakers is that any intervention has to be coordinated with other central banks for it to be effective.  Going at it alone can be futile – just look at the Swiss National Bank’s intervention efforts and the mark-to-market losses it is nursing.  We doubt other central banks will want to join in. 

“Everyone wants a weaker currency, but of course, not every currency can weaken at the same time.  The yen is merely an outcome of the various tensions that exist in currency markets at present as investors navigate through an uncertain economic backdrop. 

“After all, you don’t buy the yen based on the fundamentals of the Japanese economy.  So further yen strength looks likely in the near-term.” 

EUROZONE SENTIMENT IMPROVING. 

“The rise in economic confidence in the Eurozone suggests reasonable prospects for Q3 GDP growth, though austerity measures could yet weigh.  The US data was mixed, but was generally taken as negative for risk assets, which saw equities fall and bond prices rise. 

“The USD gained against the EUR and GBP on increased risk aversion, and the NZD was left to track US equity moves.”

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