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ANZ Morning Currency Briefing

Fuseworks Media
Fuseworks Media
ANZ Morning Currency Briefing


CURRENCY: Many will be hoping the NZD juggernaut will finish the week parked in a hanger of some description. For today narrower ranges are likely with downside bias as the concerns of world contagion increase.

RATES: Given the global rally in rates overnight, the NZ market will have a bias towards the received side, with yields to open lower across the curve.

Review CURRENCY: A handbrake turn for the NZD between yesterday's trading session and the midnight run lower. Support above the 200 day moving average at this point has held although the NZD opens close to it.

GLOBAL MARKETS: US and European equities lower on contagion fears from Greek debt crisis. US and European yields fall as the ECB resists call to purchase Greek debt. Oil lower and gold higher, with sovereign debt concerns to the fore.

Key Themes and Views

* Sheer Panic. The carnage in global markets overnight has all the hallmarks of fear and panic. The DJIA fell nearly 1000 points at one stage. Commodities were crushed, apart from gold, taking commodity currencies down with it. The market's various "fear" barometers - the VIX, libor spreads and TED spreads - all spiked higher. Investors fear that European sovereign concerns will spread and create contagion. The fact that the ECB did not take any decisive action and did not seem interested in discussing the Greek crisis disappointed investors, who rushed to push the sell button. Portugal also had its Aa1 rating put on review for downgrade by Moody's. The Euro came close to hitting 1.25. It only seems a matter of time before that key support level breaks. On the face of it, the overnight market reaction may have been overdone. But the question increasingly asked is where the mark-to-market losses on european debt will ultimately reside, and this is looking to be mostly in European financial institutions. We have now moved beyond a mere Greek debt crisis.

* ECB hoses down contagion fears. The ECB kept benchmark interest rates at a record low. President Trichet noted that the ECB remained alert but "will never, never put in jeopardy the anchoring of inflation expectations and the delivery of price stability, which is out major asset". Hosing down contagion fears, Trichet reiterated that Portugal and Spain did not face the same challenges as Greece. He dismissed the prospect for any euro member defaulting on debt: "default is, for me, out of the question."

Overnight Comments/Events

* Italian Government trims 2010 and 2011 GDP forecasts. GDP projections were trimmed by 0.1 percent for 2010 (to 1 percent) and 0.5 percent for 2011 (to 1.5 percent). These projections remain more optimistic than those by Standard & Poor's and IMF. It the latter are closer to the mark, it is likely to translate into a worsening fiscal debt trajectory than the 119 percent of GDP projected for 2011.

* German Factory orders surge. Not everyone in the euro area is finding the going tough, with German business confidence at a 2-year high.

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