OUTLOOK

CURRENCY: Expect the NZD to continue to remain on the sidelines and testing support levels. For today any move through 0.6850 will see demand increase while sellers will await any chance of a spike back above 0.69USD.

RATES: Expect the local market to open a touch lower in yield in sympathy with lower Australian and US bond yields. The swap market remains dominated by receivers, and is likely to continue grinding lower as the market prices out/delays rate hikes. Estimates for US non-farm payrolls (tonight) vary widely, making it a potential source of volatility.

Review

CURRENCY: Offshore markets appear to be picking up on local economic signals and pricing the NZD accordingly. The NZD moves smoothly through support yesterday and tested the resolve of buying interests overnight.

GLOBAL MARKETS: A mixed session on Wall Street, which opened higher, but has fluctuated throughout the session. Major European bourses closed down, as did the CRB Index. Gold and oil both fell.

Key Themes and Views

GREEK BOND SALE GOES WELL. Greece drew strong demand for a EUR 5bn 10 year bond, which was priced at a spread of 300bps over the mid swap rate. This is a hefty premium and is roughly twice the yield on German Bunds, but at least Greece has been able to get the issue away. Still, all is not well in Greece - the government is facing a popular backlash against fiscal austerity measures, with media reports that protesters have occupied the finance ministry. Discussions relating to an EU plan to extend a circa EUR 25bn of aid to Greece are ongoing, and German Chancellor Angela Merkel is said to be facing growing opposition from taxpayers. There has been talk (including from the Greek PM) that Greece could turn to the IMF for help, but ECB Governor Trichet has said he is opposed to such an idea, adding that "I don't trust that it would be appropriate to have the introduction of the IMF as a supplier of help."

Overnight Comments/Events

The Bank of England left its policy rate unchanged at 0.50%, and maintained the size of its Asset Purchase Programme at 200bn, as expected. Recall the plan started out as a 75bn plan, which was expanded to 125bn, then 175bn, and finally 200bn. No statement was made, but of course the BOE have the option of expanding the facility again should the need arise.

The ECB also left its policy rate unchanged, at 1.00% as expected. The Bank also said it would return next month to competitive tenders for 3-month loans to banks, a sign that it is more comfortable with money market conditions and the latest stage in a gradual withdrawal of billions pumped into banks in the worst days of the financial crisis in 2008. But it balanced the move by extending unlimited funds at flat rates at weekly and monthly lending operations until October, longer than most analysts had expected, and promised to lend banks extra three-month funds to prevent a spike in rates.

NZD: Support approaching

Having had a few poor days the NZD is approaching previous support around the mid 0.68USD region. Expect tentative buying only as the RBNZ Monetary Policy Statement implications are finally getting through to offshore markets. Topside selling interests around 0.6910 should cap things today.

Expected Range: 0.6840 - 0.6910

NZDAUD: Still ahead

Further downside moves for this cross rate as offshore investors clearly favour Australian investments over those in New Zealand. This cross continues towards interim support at 0.7583 which may be seen in tonight's trading session.

Expected range: 0.7583 - 0.7661

NZDEUR: Surviving

With moves close to the major daily trend up channel overnight markets will begin to wonder if remaining above the 10 year moving average is too hard an ask. Overnight no change to the interest rate environment by the ECB did little to alter recent moves.

Expected range: 0.5030 - 0.5080

NZDJPY: Dipping

A move through support at 60.90 overnight did not last long. Today further moves through this level are possible as exporters look for a deeper move closer to 60JPY before entering the market.

Expected range: 60.40 - 61.90

NZDGBP: Quiet

No change from the Bank of England overnight on interest rates or the QE amount (GBP200bio). This news did little to thwart the move down to support at 0.4552 from where the cross has marginally bounced.

Expected range: 0.4545 - 0.4595