NZD

Currency markets played the waiting game last night. With the US and parts of Asia on holiday, it was all a bit subdued across FX markets overnight. The NZD/USD tracked a relatively narrow 0.6950-0.6990 range.

Markets are eagerly awaiting news on whether the EU Finance Ministers meeting currently underway will announce concrete measures to support Greece through its fiscal crisis. Uncertainty over Greece's plight continues to weigh on EUR. Overnight, EUR/USD hovered around 9-month lows close to 1.3600 as various news headlines suggested EU support for Greece is far from assured. NZD/EUR drifted up to nearly 0.5130, which helped underpin NZD/USD last night.

Also lending support to NZD and AUD, Goldman Sachs and Merrill Lynch said their upbeat 2010 growth forecasts for China (of 11.4% and 10.1% respectively) have not been affected by recent Chinese measures to crimp lending growth. Both macro and leveraged-type accounts have been noted buyers of NZD/USD over the past 24 hours.

Today's Q4 producer prices will likely affirm the mild inflation undertones already seen in the likes of the CPI, wages and even last week's retail price deflator. As for the overall PPI prints, we're expecting pretty flat results for each of output and input prices in Q4, producing annual declines in the order of 3.5%.

But it is really the RBA's February Board minutes, due at 1:30pm (NZT), which have the greatest potential to influence the NZD today. Investors will be scrutinising the report to gauge how close a call the surprise on-hold decision was. Our Australian colleagues reckon the minutes may read a little dovish as the RBA justifies its pause. The knee-jerk reaction to such a scenario would likely see both AUD and NZD lower. However, any reaction is likely to be relatively fleeting given the minutes are now a little outdated. Initial support on NZD/USD is eyed on dips towards 0.6890, while headwinds are expected on bounces towards 0.7020.

Majors

Currencies lacked a bit of direction last night. Movements overall were relatively muted given the US and many Asian markets were closed for holidays. Nevertheless, while most of the major currencies tracked broadly sideways, more weakness was evident in EUR and GBP.

European Finance ministers are currently locked in a two-day meeting where how to deal with the Greek fiscal crisis ranks high on the agenda. In the interim, uncertainty about what form of support will be announced for Greece has been dragging EUR steadily lower. It appears markets remain sceptical over the chances of concrete measures being announced to support Greece. CFTC data (for the week ending 9/2) shows that speculative investors now hold a net short position in EUR of around 57,000 contracts - the largest net short position on record.

Overnight, dribbles of information from EU Finance ministers saw EUR/USD hover close to 9-month lows around 1.3600. Eurogroup Chairman Juncker said Greece must cut its budget deficit by 4 percentage points this year, while Finnish Finance Minister Katainen told Reuters that Greece must source the money it needs from the market. European stock markets managed to eke out small gains; the DAX rose 0.2% and the FTSE was up 0.5%.

USD/JPY spent the night drifting lower, to reach around 90.00, from a smidge above 90.20. Yesterday's fourth quarter Japanese GDP data came in above expectations (1.1%q/q vs. 0.9% expected), as government stimulus fuelled a rebound in domestic demand. But, far from popping the champagne corks, investors were dismayed over a record 3%y/y fall in the GDP deflator, suggesting the Japanese economy is slipping further into deflation.

Its worth noting, concerns are mounting over rumours Dubai World is having difficulties with its debt restructuring. The cost of insuring Dubai sovereign debt spiked to 9-month highs around 580bps overnight.

We suspect EU finance ministers will need to stump up with some concrete proposals for how the EU plans to support Greece (and other struggling sovereigns) to stem the recent bout of EUR weakness. In the absence of such, a test of EUR/USD support around 1.3530 is likely in the next few days. A break through this level would open up deeper support near 1.3420. Elsewhere this week, a raft of Fed speakers may provide further clarification on the Fed's exit strategy from current unorthodox monetary policies, starting with Lockhart and Kocherlakota tonight.