Greek PM tables request for new 2-year bailout program; EU treaties may not provide for Grexit; divergence between AUD and NZD following weak NZ business confidence survey

By Kymberly Martin

The NZD has been amongst the weakest performers over the past 24-hours. Meanwhile the AUD has outperformed.

Markets were relatively calm overnight, despite a continued deluge of Greek headlines. Our global risk appetite index (scale 0-100%) has rebounded slightly to 45%.

Peripheral Eurozone bond yields actually fell slightly along with CDS spreads.

However, Greece looks set to fail to pay the IMF at its deadline in a few hours.

Meantime the Greek PM has tabled a request for a new 2-year bailout program from the European Stability Mechanism.

The Greek finance minister also said Greece was seeking legal advice, as it did not believe that EU treaties made any provision for Euro exit.

Greece remains determined to cling onto Eurozone membership. Meanwhile, German Chancellor Merkel has stated that lawmakers can not consult on any new proposals until after the Greek referendum, scheduled for Sunday.

Overall, the EUR/USD has slipped back toward levels that it traded at Friday’s close i.e. around 1.1150.

The AUD and NZD have diverged over the past 24-hours. The AUD/USD has crept steadily higher overnight. From 0.7670 it now trades at 0.7710.

By contrast, the NZD was on the back-foot from yesterday morning after the release of the ANZ business confidence survey.

The weakening in the survey was broad-based as opposed to being confined to the agriculture sector. The numbers suggest some downside risk to our GDP forecast for calendar 2015 of around 2.5%.

Still, it does not point to an alarming slowing in growth and inflation indicators actually wriggled up a bit.

Downward momentum in the NZD/USD extended overnight. It broke through support at 0.6790 to trade at 0.6770 this morning.

The NZD is also notably weaker on the crosses. The NZD/AUD gapped through support at 0.8850 and is now trading at its lowest level since Nov-2013.

Falls against the JPY and GBP have been equally noteworthy. At 0.4310, the NZD/GBP is now flirting with its Nov-2009 lows.

The next test for the NZD will be the latest GDT dairy auction in the early hours of tomorrow morning. Some indicators are starting to suggest a bit more balanced outlook for dairy prices.

However, we would still be more surprised to see a significant bounce at tomorrow’s event as opposed to a further moderation in prices.

The broader direction of the USD tonight will also likely be influenced by the US ADP report. The market tends to see this as framing risks around the US monthly payrolls report (due Thurs night).

Kymberly Martin is on the BNZ Research team. All its research is available here.