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ANZ Morning Currency Briefing

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Fuseworks Media
Fuseworks Media
ANZ Morning Currency Briefing

CURRENCY: Expect today's trading to be dominated by continued headlines around the Greek rescue package. Overall support for the EUR and removal of short positions may have the side effect of strengthening the NZD.

RATES: There was receiving interest in the NZ rates market overnight during London trading. We expect the same during today's session, with yields to open unchanged but biased to head slightly lower.

Review

CURRENCY: Finally resistance on the topside broke for the NZD as it powered through 0.7094 off the back of short NZD/long AUD position reversals. A stronger EUR assisted the move higher.

GLOBAL MARKETS: Wall St climbs, with the Dow briefly surpassing 11,000 on positive data, European equities higher on hopes that Greek issues resolved. US yields fall on strong demand, Greek jitters, UK and German yields higher. Oil slightly lower, commodities broadly unchanged.

Key Themes and Views

* greek rescue package emerges. On Friday, Eurozone deputy finance ministers and central bank governors agreed to a rescue package. Terms of the emergency loans (which could be worth as much as 45 billion euros) would be "almost a carbon copy of the IMF terms" according to an EU source. For loans up to three years it is the SDR rate plus 300 bps plus 50 bps service charge.

This would equate to more than 6 percent for loans up to three years and 100 basis points more for a longer term loan. This helped initially narrow the Greek 10-year bond spread with bunds to below 400 bps, although the downgrade by Fitch of the Greek sovereign rating to BBB- (its lowest investment grade rating), saw spreads retrace somewhat.

With Greece needing to borrow 11 billion euros by the end of May to finance debt, crunch time is approaching. The Greek economy is officially forecast to shrink by 2 percent this year, but there is considerably downside risk to this which would make it harder to meet the proposed 4 percent of GDP reduction in the Budget deficit this year.

* china trade deficit likely to be temporary. In March, China posted its first trade deficit in six years ($7.2bn deficit). However, according to Chinese Commerce Minister Chen the deficit is likely to be temporary as seasonal labour shortages for Chinese textile imports are alleviated. The Chinese Trade deficit was mostly with Asian trading partners, with a trade surplus with the US being maintained.

Pressure on the Chinese authorities to lift the value of the yuan remains intense with US Treasury secretary Geithner's unscheduled visit to Beijing last week. Aside from political pressures, there is an economic case for a stronger currency, with surging import prices (up 17 percent from a year earlier), likely to add to inflation. Economists are predicting a 4 percent annual CPI print in the coming months, which could see a rate rise as early as April, and a yuan appreciation by June.

Overnight Comments/Events

Climb in US wholesale inventories a positive sign. The stage is being set for companies to boost investment and production in the coming months as demand picks up.

NZD: New round

Having broken, yet again, key resistance levels the NZD should find itself looking for offshore direction today. Limited downside moves are likely given the continued support on any dips that will be experienced.

Expected Range: 0.7126 - 0.7196

NZDAUD: Driver needed

It will take further position squaring to see this cross move back above resistance currently around 0.7692 (1.3000AUDNZD). With little local economic data on the scene until later this week market flows may determine if a move back into the 0.77AUD territory takes place.

Expected range: 0.7650 - 0.7692

NZDEUR: Watching the headlines

With another weekend of flip flop comments around a Greece rescue package ending with a 1/3 IMF 2/3 EU split in funding generally accepted by all (not without some debate) the EUR should strengthen to start this week. It may preclude this cross from extending recent gains for now.

Expected range: 0.5285 - 0.5335

NZDJPY: Delicate putt

This cross should continue to find difficulty in finishing the day above 67JPY. Moves close to this level have found willing sellers of NZD preventing the expected burst towards the 10 year moving average.

Expected range: 66.00 - 67.00

NZDGBP: Check the score

Will UK March PPI data, as it rightly should, overtake the UK election poll headlines? The large increase in both input and output prices is an early warning sign that should spell higher UK interest rates and help to strengthen the GBP. Sometimes however the market pretends to be deaf.

Expected range: 0.4624 - 0.4674

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