Aussie Dollar Impacting on Kiwi

Today’s NZD trading should have a lower cap in place as the fortunes of the AUD continue to impact those of NZD, albeit on a smaller scale, says Mark Smith senior economist at ANZ. Support levels should be further investigated on the day.

RATES:  Very quiet trading in the kiwi overnight in London . Local yields are expected to be biased lower following similar moves offshore.

REVIEW

CURRENCY:  A reluctant NZD followed the easing AUD yesterday and overnight.  Concerns around Chinese equity markets assisted the move despite the European arena appearing more settled.

GLOBAL MARKETS:  A very quiet session overnight. Market sentiment remains heavy. The AUD fell as Treasurer Swan prepared the market for a tough Australian Budget (May 8), and with increasing speculation of a pending RBA rate cut following a Terry McCrann article overnight. Downward revisions to Q4 GDP also weighed on the GBP. Equities were down in most markets, with the Euro Stoxx 50 down 1.1%, the FTSE down 1.0%, and the S&P 500 0.8% lower from the previous close at the time of writing.  Government bond yields eased in most of Europe , with 10-year yields down across most markets, including the periphery. US yields were unchanged. CDS spreads narrowed for most of Europe, but widened for Spain . Commodity prices fell 1.3% on the CRB measure, with crude oil down 2.2% and precious metals down nearly 2%.

KEY THEMES AND VIEWS

EU RESCUE FUND SET FOR A BOOST.  According to a draft statement European governments are preparing for a one-year increase in the ceiling on rescue aid up to €940bn at their March 30 meeting in Copenhagen . The €500bn European Stability Mechanism will reportedly run alongside the €200bn committed by the “temporary” EFSF, with an additional €240bn available until mid-2013 “in exceptional circumstances”. Despite the upbeat talk that the worst is over, the vulnerabilities caused by high indebtedness have not gone away, with Chancellor Merkel earlier warning of “fragility” in Portugal and Spain . Not everyone is in favour of boosting the fund, with ECB member Weidman warning it will not solve its debt crisis and may in fact set “incentives that lead to new problems in the future”. Weidman noted calls that fiscal austerity will stifle growth, as “being exaggerated”, and urged countries with fiscal and current account deficits to address those imbalances. He also rejected calls for the ECB to do more to support the Eurozone economy, warning that if the ECB monetises debt it will have a highly corrosive effect on the credibility of the ECB.

OTHER EVENTS AND QUOTES

·          BOE King Comments: Britain faces a “long road back to pre-crisis economic growth rates as banks are still reducing their balance sheets.”

·          A Federal Reserve Bank of New York Study based on historical episodes finds that the US unemployment rate (currently 8.3%) could drop to as low as 6% (the consensus expectation is 7.6%) by H1 2013.

·          US Durable goods disappoint. The surprise was due to a lower than expected rebound in commercial aircraft orders. Core measures (+1.6% m/m) were in line with expectations.  

NZD/USD: Rough neighbourhood…

The NZD has suffered from hanging around the Australasian neighbourhood.  With increasing expectations of an RBA interest rate cut next week being built in by the FX market the NZD cannot help but further explore support levels.  Today’s local releases may add more to the picture.

Expected range: 0.8120 – 0.8180

NZD/AUD: Left behind…

Resistance previously at 0.7830 has now become an important support level.  Anticipation of the RBA announcement is building momentum on this cross but the next target (0.7961) remains some way off and will not be seen without an actual lowering of the cash rate differentials.

Expected range:  0.7830 – 0.7890

NZD/EUR: Easing back…

Positive short-term Italian bill auctions and comments from EU leaders have helped the EUR to gain marginal ascendancy on this cross overnight.  Support levels should be tested today.

Expected range: 0.6120 – 0.6150

NZD/JPY: False hopes…

Yesterday’s initial tests of resistance failed to unfold into further gains as the fortunes of the NZD turned.  Expect this cross to remain within the 67JPY zone during today’s trading.

Expected range: 67.20 – 67.80

NZD/GBP: Weaker outcome…

A revision lower of the UK Q4 GDP data overnight was enough to hold this cross within the recent range.  Expect similar trading today with resistance lowering further to 0.5150.

Expected range: 0.5120 – 0.5150

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