OUTLOOK

CURRENCY: NZD demand may wane slightly should the NZD approach the next difficult technical level (0.72USD) today. USD fortunes remain mixed although with a downside bias as position squaring continues.

RATES: Expect the local rates market to open broadly unchanged following a quiet London session, and a fairly flat AU market. US rates are down.

Review

CURRENCY: US equity markets remained positive after the US FOMC and risk appetites increased globally. This theme continued overnight with demand from all quarters for the NZD and AUD.

GLOBAL MARKETS: Another day of rallies across the board in Europe and North America, with the Dow up for the 7th day, spurred on by yesterday's dovish FOMC statement. Bond yields ground lower, and being a "risk on" sort of day, it was not a surprise to see that the CRB index was also up.

Key Themes and Views

* EQUITIES AND OFFSHORE EVENTS DOMINATING STILL. Equity markets continue to lead the way, and have helped spur the NZD on overnight. But it is not domestic events that are providing direction, but rather a case of risk on or risk off. This has been a quiet week for data, both here and Australia, leaving markets looking offshore for direction. Domestic rates continue to grind lower in line with US and Australian rates, and are likely to be led by offshore until next week's GDP data. Yesterday's fall in quarterly consumer confidence did little for market direction, with overall direction is lacking in the local session.

* BANK OF ENGLAND MINUTES UNANIMOUS, inflation concern. Minutes from the March 3rd/4th meeting showed the Monetary Policy Committee voted unanimously to leave interest rates at a record low 0.5% and leave the 200bn bond purchase programme unchanged. Some members were concerned about the potential inflation impacts of the weaker Sterling. However, with the economy yet to show real signs of picking up, and public finances stretched, inflation pressures are unlikely to endure or require a traditional response from the BOE.

Overnight Comments/Events

* US issues new funding and liquidity risk management policy. The Fed notes that "this policy statement emphasizes the importance of cash flow projections, diversified funding sources, stress testing, a cushion of liquid assets, and a formal, well-developed contingency funding plan as primary tools for measuring and managing liquidity risk.

* Greek austerity doomed? Harvard Professor Feldstein says "the idea that Greece can go from a 12 percent deficit now to a 3 percent deficit two years from now seems fantasy", saying Greece may quit the euro.

* China Bubble. James Rickards, former general counsel of hedge fund Long-Term Capital Management, said "as I see it, it is the greatest bubble in history with the most massive misallocation of wealth". He asserts that "the Chinese central bank's balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan". Rickards joins several other high profile commentators asserting that China is a bubble waiting to burst, including former IMF Chief Economist Ken Rogoff.

NZD: Overheated?

Not in relative terms. While many will still cling to the daily down trend of the NZD yesterday's key break of the 55 day moving average (0.7097) now becomes vital support that should not be tested today. Topside offshore markets will look to 0.72USD as the next key level to tackle.

Expected Range: 0.7126 - 0.7196

NZDAUD: Knocking and waiting

A continued exit strategy from those positioned incorrectly for recent moves should see further topside potential. Increasing difficulty to move higher at this point will be encountered around 0.7789.

Expected range: 0.7735 - 0.7789

NZDEUR: Breakout

NZD strength has led the way after the EUR attempted to sustain a break higher through 1.3807. An extension past 0.52EUR may have to be reversed today as importer covering eases this cross lower.

Expected range: 0.5181 - 0.5222

NZDJPY: Japanese QE

An increase in the Japanese QE total to JPY20trillion yesterday did little to move the JPY. This left cross moves up to the NZD and it brutalised resistance levels but could not cross the final hurdle of 65JPY. Potentially this could be tested during Asian time today.

Expected range: 63.85 - 65.00

NZDGBP: How short is too short?

Markets were squeezed out of short GBP/long USD positions overnight helping to neutralise moves on this cross. Expect further difficult getting above 0.47GBP in the short-term.

Expected range: 0.4653 - 0.4693