The NZD has been supported by a better tone in markets (European and US equity markets are up 0.70- 2.0%). The NZD/USD currently trades around 0.8170.

Yesterday's NZIER quarterly survey of business opinion showed business expectations remain lofty, despite recent past malaise.

In line with the recent National Bank survey, it actually suggests some upside risk to our own view of a modest expansion in growth from a low base. However we stick with our view of an economy growing at 2.4% in calendar year 2012, rising to 2.9% in 2013.

The release did not have a meaningful impact on the NZD that continues to derive direction from global sentiment. In this regard it was aided by a slight improvement in mood over the past 24-hours (see Majors). The NZD/USD found resistance at 0.8220 this morning, returning to trade just below 0.8170 at present. We continue to see support at 0.8120 and resistance at 0.8220.

Trading relative the key European currencies (GBP, EUR) showed a similar pattern overnight. The NZD made gains versus both to highs early this morning, before subsiding to trade at similar levels as yesterday morning. The NZD/EUR currently trades just above 0.6230.

The NZD/AUD lost a little ground. Rising AU interest rates (reversing previous days' losses) helped to underpin the AUD. The NZD/AUD currently trades around 0.7940. This cross should be volatile today with key releases on both sides of the Tasman. At 10.30am (NZT) the NZ PMI is released, and at 1.30pm (NZT) AU employment data.

Majors

Market sentiment improved somewhat over the past 24-hours. The USD and JPY are lower and the AUD was the strongest performer.

Market sentiment improved overnight. Our risk appetite indicator (scale 0-100%) inched up to 54%. Alcoa, the first of the S&P500 companies to report Q1 earnings announced an unexpected profit. Concerns regarding Spain eased a little (see Fixed Interest). Early this morning the Fed's Beige book noted that in all 12 regions the economy maintained expansion, with manufacturing, hiring and retail showing signs of strength despite higher fuel prices.

The USD lost some of its "safe haven" appeal in this environment, as did the JPY. However, the USD index bounced off intra-night lows of almost 79.50 to trade around 79.80 currently. The USD/JPY crawled higher from around 80.70 to current levels around 80.90.

The EUR/USD was on the ascendancy in the evening touching above 1.3150. The EUR found favour as Spanish bonds rose and Italy held a successful auction of sovereign bills. Early this morning it lost momentum, drifting back to trade around 1.3100 at present.

The AUD/USD has been on a fairly steady upward path, reversing much of the previous day's losses. It now sits around 1.0300, as it faces a busy day on the AU data front. Consumer inflation expectations will be released this afternoon. The more important release for the currency will likely be employment data to be released at 1.30pm (NZ time). The market expects the unemployment rate to tick up from 5.2% to 5.3%. A weaker outcome and/or fall in inflation expectations (currently 2.7%) would increase the possibility of future RBA rate cuts. The market currently prices around 95bps of rate cuts in the year ahead.

Tonight, US weekly initial jobless claims will be released and will likely be scrutinized with additional intensity in the wake of last Friday's disappointing payrolls number. Eurozone industrial production data will also be released, giving a timely indicator of the region's industrial health.

Fixed Interest

The NZ swap market was whipped around a bit by moves in the Australian market yesterday. However, yields closed down a modest 2-3bps. The yield on 2-year swaps closed down 2bps at 2.94%. The market now prices just 11bps of rate hikes from the RBNZ in the year ahead. The 2s-10s curve closed at 135bps. There is good support on the curve at this level so any dissipation in global concerns will likely prompt a steepening.

NZ bond yields closed little changed yesterday, despite some intraday volatility. Across the Tasman, AU long bonds sold off, with their yields rising 9bps in the afternoon. This narrowed the NZ-AU 10-year spread which had become very stretched, to 28bps. Still, at these levels further narrowing is expected. (the bottom of the range sits around -10bps). Today's DMO tender was announced at 50m of 17s and 19s and 100m of 23s. The current gap between NZ and AU bond yields should help support demand at this tender.

Overnight, market sentiment improved somewhat, whilst remaining skittish. Sentiment towards Europe was boosted after ECB member Coeure hinted that the ECB may revive its sovereign bond purchase program to lower Spanish borrowing costs. The yield on Spanish 10-year bonds fell 9bps to 5.83%.

US 10-year yields clawed back from their previous day's lows, in the backdrop of rising equity markets. The release of the Fed's Beige book early this morning stated "the economy continued to expand at a modest to moderate pace?", and did nothing to dampen spirits. The US 10-year yield currently sits at 2.03%.

Today, the NZ PMI will be released, along with NZ credit card spending data. Across the ditch, AU employment data is published today. Italy will also return to markets with a bond auction this evening, which will be closely watched given renewed market concerns regarding European sovereign funding.