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ANZ Morning Currency Briefing

Contributor:
Fuseworks Media
Fuseworks Media
ANZ Morning Currency Briefing

CURRENCY: A tentative start to this week is likely as markets digest the Greece IMF/EU rescue package. Japanese holidays for the first three days may see the NZD on the sidelines reluctant to join the game.

RATES: NZ swap yields to open unchanged/slightly firmer. Review CURRENCY: An extremely exuberant NZD finished off the month testing the resolve of sellers with a poke above 0.73USD on Friday evening. Increasing selling pressures eventually weighed it down to see it finish sub 0.73USD.

GLOBAL MARKETS: US, European equities lower as US investigators begin criminal probe into Goldman Sachs. Bond yields ease on safe-haven flows. Oil and other commodities (CRB index) rise by roughly 1 percent.

Key Themes and Views

* greece agrees to more austerity measures. Euro region finance ministers agreed to a 110 billion-euro ($146 billion USD) rescue package for Greece. The financial lifeline will last three years and will force Greece to cut its budget deficit below the European Union's limit of 3 percent of gross domestic product by the end of 2014, a year later than originally planned. The first payment will be made before Greece's next bond redemption on May 19. Euro members will pay 80 billion euros and the International Monetary Fund contributes the rest. In exchange for the bailout Greece has announced spending cuts and tax hikes totalling 30 billion euros over 3-years (13 percent of GDP), on top of measures already. The package will also set up a "financial stabilisation" to help with bad loans stemming from the austerity measures. As evidenced by the May Day protests in Athens, this planned belt-tightening is not proving to be very popular. However, with the Greek economy set to shrink by a cumulative 7 percent over 2010 and 2011, the pain is yet to come. Spreads with 10-year German bunds are currently 595 basis points.

Overnight Comments/Events

* PBOC raise reserve requirement. At 17 percent for the biggest banks, the 50 basis point rise is effective May 10 and this is the third increase this year. With the Chinese economy still showing signs of overheating, analysts believe the policy tightening will be insufficient to prevent further policy tightening.

* Australian Tax changes announced. Key changes, to be phased in progressively from 2012/13, include corporate tax cuts (to 28 percent by July 2014), more generous treatment for superannuation, and additional funding for infrastructure. These changes are funded via raising the taxation of 'super-normal' profits from the Resource Sector to 40 percent.

* UK election nears. With the Conservative Party making gains in recent polls, leader David Cameron noted "tough and difficult decisions" to get the UK public finances under control. However, he pledged to act responsibly and to "do everything we can to have a good and strong government in the natural interest".

NZD: Warming up An extremely critical month lies ahead for the NZD. Key event risk around the 20th May NZ Budget, as clearly evidenced by developments in Greece, should ensure a very conservative and achievable approach. Underlying support remains for the NZD as it requires further consolidation work within the 0.7235-0.7320 zone before the next move.

Expected Range: 0.7240 - 0.7320

NZDAUD: Taxing efforts The weekend's Australian announcement around taxes should see this cross give up some of the extreme moves delivered during the close of last month's trading. The RBA announcement tomorrow may help keep this cross more contained and deliver a topside cap today.

Expected range: 0.7813 - 0.7895

NZDEUR: Own goal In theory the Greek rescue package should see the EUR start this week on a positive note. The brief foray with 0.55EUR+ levels on Friday night should not be seen today as markets assess the credibility of the rescue package.

Expected range: 0.5445 - 0.5495

NZDJPY: On the bench Japanese holidays for the majority of this week should see this cross unable to break the 70JPY level at this point. It however remains the next major target and at some point will be thoroughly tested. For today the moves should be somewhat more subdued.

Expected range: 67.75 - 68.75

NZDGBP: Man down This week's UK election is likely to assist with higher levels on this cross. The finances in the UK cannot be good and any handover of power will expose the current situation for what it isvery bad.

Expected range: 0.4736 - 0.4796

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