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ANZ Morning Currency Briefing

Contributor:
Fuseworks Media
Fuseworks Media
ANZ Morning Currency Briefing

CURRENCY: Equity weakness and European concerns should flow through to the Asian session today. Support on dips will be evident for the NZD however the EUR remains perilously close to the ultimate key level.

RATES: NZ swap yields to open slightly lower. Review CURRENCY: A tentative start to the day for the NZD yesterday but it failed again to surmount topside selling interests. Overnight offshore equity markets took their lead from a very weak Chinese market.

GLOBAL MARKETS: US and European equities fall as Greek debt worries mount. Bond yields fall on safe-haven flows. Oil and other commodities (CRB index) ease.

Key Themes and Views

* sovereign debt concerns to the fore. Financial markets remain concerned that the sovereign debt crisis afflicting Greece may spread to some of the weaker eurozone economies, derailing the global recovery. Strikes by public workers in Greece have heightened fears about Athens' ability to enforce deeper spending cuts and suggest that the message is not sinking in. The cost of protecting debt of some European sovereigns jumped as concerns over contagion grew. CDS spreads for Portugal climbed 80 basis points (to 370bp), while those for Spain (up 50bp to 212), Ireland (up 36bp to 225bp) and Italy (up 16bp to 158bp) also rose. CDS backed by Greek government debt were around 700bp.

* US economy continues to improve. The surprise surge in US factory orders confirmed the manufacturing sector continues to lead the recovery. Details were strong. Excluding transportation orders, factory orders surged 3.1 percent, the biggest gain in five years, whereas non-defence capital goods (ex-aircraft) jumped by 4.5 percent. While the climb in pending US home sales to a five month high is largely due to homebuyer tax credits, analysts believe it bodes well for the coming months. Analysts expect April US non-farm payrolls (released Saturday, NZ time) to increase by 200k, but an upward surprise is definitely possible. However, according to Former FOMC Chairman Paul Volcker, it could be a "long slog" as the economy struggles to reduce the jobless rate (currently 9.7 percent).

Overnight Comments/Events

* Dairy prices plateau. This morning's Fonterra Online Auction results shows the average price across all contracts and contract periods for Whole Milk Powder was $3,932 per tonne, 1.2 percent lower than the April event. However, USD prices are more than 80 percent up on 12-months earlier (more than 50 percent up in NZD terms).

* UK mortgage approvals rise for first time in four months. Analysts attribute the improvement to better weather. House prices are expected to extend their recovery as low borrowing costs and the shortage of homes support the property market.

* Global manufacturing expands at fastest pace since 2004. The JP Morgan PMI rose to 57.8 in April. Output and new orders surged to multi year highs. The UK manufacturing PMI rose to its highest in 15 years as the weaker pound fuelled export demand.

NZD: Wait up Evidently the NZD is not immune to offshore contagion as demonstrated overnight. Weaker equity markets will flow through to today's activity. While support will be evident on dips it will be cautious buying that takes place as markets attempt to determine how far the EUR may fall.

Expected Range: 0.7186 - 0.7256

NZDAUD: RBA hikes but After the expected hike was delivered by the RBA the AUD promptly weakened. Further hikes will come however key AUD cross levels were unable to be broken. The resulting AUD weakness has provided a lift in this cross as further position shifts occur.

Expected range: 0.7885 - 0.7945

NZDEUR: Just how back is a weak EUR? Markets have punished the EUR overnight on concerns that things will spread. In reality the EU/IMF rescue package may have come too late to save the EUR from further falls. A lower EUR however will help the exporting economies of the EU so at some point the good news will flow through. Today is not that point as the EUR rests precariously above 1.30USD.

Expected range: 0.5505 - 0.5565

NZDJPY: Not ready With another holiday today in Japan the markets will retain their "quiet" state. This cross is not yet ready to break 70JPY but will find support on dips should it move closer to the 67.50 level today.

Expected range: 67.75 - 68.75

NZDGBP: Just two more sleeps The election is nearing and polls remain tight. Further spikes above 0.48GBP are possible but they represent good buying levels at this point.

Expected range: 0.4735 - 0.4785

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