Currencies

The Opening Bell: Where currencies start on Wednesday, February 22, 2012

Dan Bell — Tue, 21 Feb 2012 20:27:16 +0000

By Dan Bell

The second bailout package for Greece was granted yesterday with 130 billion Euro approved, seeing the EURUSD rally to just shy of 1.3300.

Those who expected a stronger EUR and risk rally are suggesting the caution now is based on unrealistic GDP targets, the fact that Greece is actually still in the Euro, and that austerity measures generally mean no growth.

The Dow Jones rallied through the major psychological level of 13,000 after the US markets first chance to react to China’s reserve ratio adjustment on the weekend.

This level hasn’t been seen May 2008.

US Stocks have since resided, mirroring the lack of Euro-phoria seen overnight, Dow currently -0.09%, S&P -0.08%, although CRB index +1.58% lead by Cooper which was 3% higher at it’s peak

The NZD opens against the crosses at 0.6295 EUR, 0.7815 AUD, 0.5280 GBP, 66.35 JPY

Little in domestic data today, all eyes remain on Europe.

-------------

Dan Bell is the senior currency strategist at HiFX in Auckland. You can contact him here

BusinessDesk: NZ$ could hit 90 US cents in early 2013 as greenback faces headwinds, ANZ's economists forecast. Your view?

Bernard Hickey — Wed, 22 Feb 2012 07:02:05 +0000

By Jonathan Underhill

The New Zealand dollar may rise to 90 US cents next year as the greenback is held back by a ballooning US current account deficit and low interest rates, according to economists at Australia & New Zealand Banking Group.

That would break through the highs of July-to-August last year to a new record since the kiwi dollar was allowed to trade freely in 1985.

The nation’s relatively high interest rates – the official cash rate of 2.5 percent looks fat compared to about zero offered by the US Federal Reserve - are part of the appeal. Ten-year government bonds yield more than 4 percent while the comparable Treasury note yields around 2 percent.

“Our central case has the NZDUSD going to 0.90 cents,” economists led by Cameron Bagrie said in their quarterly assessment of the New Zealand economy.

“This is premised on the structural challenges the US economy faces,” they say. “Not only does the US run a large current account deficit, but its interest rates are low, putting it in the ‘wrong’ part of the spectrum.”

“In short, it is difficult to mount an argument as to why investors should buy into a low-yielding debtor currency,” they said. While the US economy would recover, it may be via a widening current account gap.

“Emerging Asian currencies will do far better out of a US recovery than the USD itself, ironically, because they export so much to the US,” they said.

The only currency the kiwi dollar isn’t likely to outrun is Australia’s, a currency backed by higher interest rates and more liquidity, the economists said.

“Australia is viewed by global investors as a larger, more liquid, and more dynamic market to invest in – and they have been rewarded handsomely,” they said.

ANZ’s fair value for the New Zealand dollar is now 70 US cents and against the Australian dollar has fallen to 80 cents. The kiwi recently traded at 83.35 US cents and 78.13 Australian cents.

The nation’s biggest lender, ANZ said the economy may grow 1.9 percent in 2012, accelerating to 3.2 percent in 2013.

Among ANZ’s key assumptions are:

• The value of earthquake reconstruction work is equivalent to 0.75 percent of GDP per annum over the next five to seven years.
• Commodity export prices decline in the coming year but remain at historically high levels.
• Dubai oil prices trade within a US$95-to-US$105 per barrel range over the forecast period.
• The net outflow of migrants begins to reverse over the next few years.

ANZ says a neutral level for the OCR would be 4 percent to 4.5 percent.

Unemployment would remain at around 6.3 percent through this year, gradually easing over the next three years.

(BusinessDesk)

For Greece "the bailout bandage is on, but it won’t take much to unravel"

BusinessDesk — Tue, 21 Feb 2012 18:38:32 +0000

The long-awaited agreement on a second international financial rescue for Greece failed to inspire investors.

Instead, Wall Street looked to corporate earnings for direction.

Home Depot, Macy's and Kraft Foods delivered, pushing their respective shares higher. Earnings of Wal-Mart Stores fell short of expectations, sending its stock down more than 3 percent.

"The market is reacting to good US economic fundamentals. The earnings side has been fine. That’s providing the biggest seeds to the strength in equities,” Michael Strauss, chief investment strategist at Commonfund in Wilton, Connecticut, told Bloomberg News.

According to Thomson Reuters data, of the 418 companies in the S&P 500 that have reported earnings, 64 percent have surpassed analysts' forecasts.

In early afternoon trading in New York, the Dow Jones Industrial Average gained 0.31 percent, the Standard & Poor's 500 Index advanced 0.45 percent and the Nasdaq Composite Index rose 0.18 percent. The Dow Jones briefly topped the 13,000 level, while the S&P 500 topped its highest close since 2008.

In Europe, the Stoxx 600 index ended the session with a 0.5 percent drop for the day.

After months of arm wrestling, Europe finally signed off on a 130-billion euro bailout Greece needs to avoid bankruptcy. However, many wonder if it will be enough to prevent the country from being crushed under its debts.

"This is the most solid agreement Greece has had, with actual money behind it, and that makes the market optimistic," Phil Flynn, senior market analyst at PFG Best in Chicago, told Reuters.

There are still significant obstacles ahead. The Greek parliament is to vote on the accord later this week.

"If you say this is definitely the end of the story, then that shows you're not familiar with the history of the issue," Flynn said. "We're cautious optimistic, but we're not likely to move significantly higher from this point since we've rallied going into it."

Analysts warned that the euro zone's troubles are far from over as there's still plenty of risk.

“The bailout bandage is on, but it won’t take much to unravel,” David Miller, partner at Cheviot Asset Management in London, told Bloomberg. “The euro zone has done its best to ensure that Greece will deliver on promises, but there is considerable scope for backtracking on deficit reduction.”

For now, the euro gained against the greenback and the Japanese yen, last up 0.1 percent to US$1.3257 and 0.2 percent higher to 105.71 yen.

Italian and Spanish bonds strengthened as well. The yield on Italy's 10-year bond fell four basis points to 5.44 percent, while the yield on Spain's 10-year bond dropped five basis points to 5.11 percent.

(BusinessDesk)

Greek deal all priced in to risk appetites

bnzeconomists — Tue, 21 Feb 2012 19:33:19 +0000

By Kymberly Martin

NZD

The NZD/USD has eased lower over the past 24-hours, interrupted by some volatility after the final announcement on the Greek/Troika negotiations. The NZD/USD currently trades at 0.8360.

Yesterday’s release of the RBNZ 2-year-ahead inflation expectations showed some easing from 2.80% to 2.50%. Following this, the NZD/USD eased a little lower, almost touching 0.8340 yesterday afternoon.

Then the announcement of a final deal in the protracted Greek negotiations (see Majors) saw the NZD benefit temporarily from a knee-jerk buying of “risky” assets. It rose above 0.8400 last night. However, the response proved short-lived, and the NZD/USD drifted off to trade around 0.8360 this morning, still comfortably within its range since the start of the month.

After the Greek announcement the EUR had a surge higher. This saw the NZD/EUR drop from above 0.6340 to below 0.6320. A general downward trend then continued overnight, seeing the NZD/EUR trade at 0.6300 currently. This has seen the NZD/EUR pull-back from its Euro-era highs last week. Still, with the “good news” now priced in the EUR we would not see significant further downside for the NZD/EUR in the near term.

The NZD was very range-bound on the cross, with the NZD/AUD tracking sideways around 0.7820 overnight.

Today, the release of NZ credit card data is unlikely to be market moving. Expect the NZD to take its cue from global developments. Attention will return to data today, with a slew of global PMI releases, kicking off with China’s this afternoon. We see support on the NZD/USD at 0.8320 and resistance at 0.8410.

Majors

After the final announcement of a deal in the Greek bail-out talks the knee-jerk rise in the EUR/USD proved short-lived. The USD is fairly flat over the past 24-hours with the AUD and NZD amongst the weakest performers.

Yesterday evening, there was finally agreement between the Troika and Greece on the terms of their bail-out. Key specifics were; a total €130b package; a target of Greek debt/GDP of 120.5% by 2020; a PSI “haircut” of 53%; central banks will not participate in the PSI but pass back accrued interest on Greek bonds to Greece. The bailout also comes with stringent new terms, including having a permanent team of monitors in Greece to ensure implementation of harsh austerity measures.

Given how far risk appetite has already run since the start of the year, the market response was less than euphoric. The Euro Stoxx 50 closed down 0.34% and the S&P500 is currently fighting to hold onto a modest 0.20% gain.

Immediately following the announcement, the EUR surged from around 1.3190 to around 1.3290. However, it proved short-lived, with the EUR drifting off to 1.3200 early this morning. It currently trades at 1.3240.

Conversely the USD index initially plunged from almost 79.30 to 78.80. Overnight, it then clawed its way back to trade above 79.00 currently.

The USD/JPY was relatively range-bound around the 79.70 level. The USD/JPY is consolidating its gains that were encouraged by the BoJ announcement of further quantitative easing, earlier this month. The USD/JPY now trades back at levels seen in July last year.

The AUD has drifted lower over the past 24-hours. The RBA minutes released yesterday did not rule out further easing if the economic outlook weakens “materially”. For now, they are comfortable with the 50bps of cuts already undertaken. The AUD/USD trades at 1.0690 currently, at the lower edge of the range it has traded since the start of the month.

In the day ahead, AU leading indicators will be released along with the AU wage cost index. This afternoon the HSBC Flash Chinese Manufacturing PMI is released. Any further signs of easing (currently 48.8) could weigh on the AUD. Tonight we get European PMI along with the Bank of England minutes and US homes sales data.

All its research is available here.

China and Japan make the big announcements, but Europe stays in the headlines

Sam Coxhead — Mon, 20 Feb 2012 21:51:33 +0000

By Sam Coxhead*:

Last week the financial markets saw further intraday volatility, while mostly within contained broader ranges.

Generally the sentiment within markets remains positive, but there is an underlying vulnerability to shocks that it easily exposed.

The uncertainty surrounding progress towards a Greek debt resolution remains the focus. Daily swings in the likelihood of success were seen last week. Most contention seems to surround EU Finance Ministers trust that Greek politicians will carry out the austerity measures they have pledged to make.

Current expectations are of a positive announcement to be made at some stage in Europe on Monday, but delays have been numerous and certainly would not surprise.

Elsewhere in the markets, the focus came in Asia late last week. Japan surprised with a 10 trillion YEN quantitative easing (QE) initiative to help stimulate the Japanese economy, and provide a reason to lower demand for the YEN.

In China authorities again lowered the reserve ratios on the banking sector. This has the effect of boosting lending and sustains economic growth. A cooling property sector and gloomy outlook for the export sector has prompted the move.

Markets start the week with a positive tone, in expectation of progress in Europe, and increased appetite for risk assets following the stimulus added in China.

Major Announcements last week:

· Japanese prelim. GDP -.6% vs -.3% expected
· Australian Home Loans 2.3% vs 1.9% expected
· BOJ announce 10 Trillion YEN QE program
· UK Inflation 3.6% YoY as expected
· German Economic Sentiment 5.4 vs -11.8 expected
· US Retail Sales +.7% vs .6% expected
· NZ Retail Sales 2.9% vs 1.1% expected
· European GDP -.3% as expected
· Australian Unemployment rate 5.1% vs 5.3% expected
· US Philadelphia Fed Manufacturing Index 10.2 vs 9.0 expected
· UK Retail Sales .9% vs -.3% expected
· Canadian Inflation .2% vs .1% expected
· US Inflation .2% as expected

NZD/USD
The New Zealand dollar maintains its pressure on the US dollar. Last week’s range was very similar to the week prior, but we start this week knocking right at the upper resistance level. This comes as sentiment builds towards a positive outcome for the extension of bailout funds from the Euro-group to Greece. For the most part expect this pairing to take this week’s lead from the wider market appetite for risk, in the absence of top tier economic data in either economy. A consolidated break through the resistance at .8420, opens up the way for investigations to .8550, but ground from current levels will be a lot harder fought, as evidenced from previous attempts.

	Current level	Support	Resistance	Last wk range
NZD / USD	0.8412	0.8220	0.8420	0.8242 - 0.8428

NZD/AUD (AUD/NZD)
This pairing remains in what has become very familiar territory over the last couple of weeks. Stronger than expected data in both economies provided the stimulus last week, for the week’s movement, within the range. The NZ dollar did look poised to try and move higher against the AUD, but the release of strong employment numbers in Australia ended that push. With the prospect of the respective cash rates remaining unchanged in the coming months, recent ranges may continue to rule for some time yet. Economic data watching remains the key to direction, with the main risk being that weaker Australian numbers would open the way for a cash rate cut from the RBA, leading to the NZD outperforming. The minutes from the previous RBA monetary policy meeting on Tuesday, are the focus for this week.

	Current level	Support	Resistance	Last wk range
NZD / AUD	0.7800	0.7700	0.7820	0.7724 - 0.7813
AUD / NZD	1.2820	1.2790	1.2990	1.2799 - 1.2946

NZD/GBP (GBP/NZD)
The NZD continues to remain at elevated levels against the GBP. Both economies saw much better than expected retail sales data last week, which is encouraging for the coming quarters. Should the likelihood of further QE from the BOE decrease in the coming weeks, the GBP may see a pickup in demand. A pickup in demand would see the GBP take back some of its recently lost ground against the NZD. The spike higher from the NZD was short lived and pairing is back in more familiar territory to start this week. The focus for the pair this week will be based in the UK, with the BOE monetary policy meeting minutes on Wednesday, ahead of revised GDP numbers on Friday. As last week proved, further ground higher from the NZD will prove to be hard fought from current levels.

	Current level	Support	Resistance	Last wk range
NZD / GBP	0.5301	0.5175	0.5375	0.5239 - 0.5364
GBP / NZD	1.8864	1.8600	1.9325	1.8643 - 1.9115

NZD/CAD
This pairing remains in recently familiar territory. Further appreciation from the NZ dollar from the lofty current levels, looks like being hard work for the NZD in the short term. Canadian retail sales data on Tuesday is the focus for the pair for the week, although it is unlikely it will have a major bearing on the overall price action. Global risk appetite will provide the bulk of the lead, and will no doubt be driven by the progress of potential Greek debt swap as the week unfolds.

	Current level	Support	Resistance	Last wk range
NZD / CAD	0.8350	0.8150	0.8350	0.8256 - 0.8362

NZD/EURO (EURO/NZD)
The NZD again set new highs against the EURO last week. The outcome from the Euro-groups decision on the further Greek bailout funds will likely provide the focus for this week. Surprisingly, a positive result will unlikely see the EURO dramatically outperform on an immediate basis. The position of the NZD as a growth asset, may see it attract demand on a positive result also. More likely would be some kind of steady appreciation over the coming week by the EURO, as details from a finalized debt swap are released. In the meantime, the NZD will maintain its elevated position, but forging further appreciation will probably prove difficult.

	Current level	Support	Resistance	Last wk range
NZD / EUR	0.6368	0.6175	0.6375	0.6254 - 0.6411
EUR / NZD	1.5703	1.5690	1.6200	1.5598 - 1.5990

NZD/YEN (NZD/YEN)
The NZD again saw some sharp appreciation against the YEN throughout the course of last week. First came weaker than expected GDP numbers in Japan, and then the surprise QE program to the tune of 10 trillion YEN. The BOJ will no doubt be very happy with the reaction to their new program. Until recently the YEN has been at record, or close to, levels against most currency pairs. This week will see the lead for the pair provided by the global appetite for risk, in the absence of any significant economic data in either economy. Progress for the NZD will prove harder fought, if it approaches resistance at 68.00.

	Current level	Support	Resistance	Last wk range
NZD / YEN	66.92	66.00	68.00	64.09 - 67.31

AUD/USD
This pairing saw its recently familiar range continue last week. Strong employment numbers have lowered the expectations for a cut to the cash rate from the RBA, at its next meeting. Balancing the change in expectations of the RBA, is the move by the markets to discount the chances of further QE from the FED in the coming months. These forces saw this newly established range adhered to last week. There is relatively little economic data due for release in the US this week, so expect the RBA monetary policy meeting minutes to be closely followed on Tuesday. Two speeches by RBA head Glen Stevens on Tuesday and Friday, will also be followed for any inklings on monetary policy over the coming months. The pair is close to topside resistance, and a positive reaction to news from Europe with regards to the Greek bailout funds, could see that level tested. However uncertainty in Europe remains the dominant theme.

	Current level	Support	Resistance	Last wk range
AUD / USD	1.0782	1.0630	1.0830	1.0625 - 1.0816

AUD/GBP (GBP/AUD)
The Australian dollar again hit a record high against the Pound Sterling last week, before seeing some selling momentum into the weekend. The pairing remains in its recently familiar range to start this week. There is a distinct central bank focus again for the pair this week, with monetary policy meeting minutes coming from both the RBA and BOE. On Tuesday the RBA starts of the data flow, ahead of the BOE on Wednesday. RBA head Glen Stevens speaks on Tuesday and Friday and these speeches will be closely watched for references to monetary policy. Revised UK GDP numbers on Friday round out the week. Expect the recent ranges to continue in the short term. Any further appreciation from the AUD will prove hard work above the AUDGBP resistance level of .6850 (GBPAUD 1.4600 support).

	Current level	Support	Resistance	Last wk range
AUD / GBP	0.6790	0.6650	0.6850	0.6756 - 0.6868
GBP / AUD	1.4727	1.4600	1.5040	1.4560 - 1.4800

AUD/EURO (EURO/AUD)
The AUD remains at elevated levels against the EURO. Interestingly there was a sharp move lower in AUD, and higher in EUR on Friday. Market chatter was that this was investors exiting speculative positions ahead of the weekend. The market remains very “bought AUD and sold EUR”, so sharp corrections back in the favour of EUR, are possible at anytime. Expect the bulk of the lead to come from progress on the potential Greek debt swap. From an Australian perspective, the RBA monetary policy meeting minutes on Tuesday, and two RBA Gov. Stevens speeches will get attention. Any inkling of imminent further cuts to the cash rate in Australia, would see the AUD come under some pressure.

	Current level	Support	Resistance	Last wk range
AUD / EUR	0.8160	0.8020	0.8220	0.8090 - 0.8228
EUR / AUD	1.2254	1.2165	1.2740	1.2153 - 1.2360

GBP/USD
The Pound Sterling regained some of its lost ground against the US dollar late last week. It nears its recent topside resistance level of 1.5920. A consolidation through this level would open the way for further appreciation. This week is relatively light on economic data in both economies, but the BOE monetary policy meeting minutes on Tuesday will be closely followed. A move to a split decision from the previous unanimous decision on QE, will point towards a lower chance of further QE in the coming months, and therefore GBP strength. Revised UK GDP numbers come Friday, ahead of the new home sales data in the US.

	Current level	Support	Resistance	Last wk range
GBP / USD	1.5876	1.5720	1.5920	1.5642 - 1.5878

GBP/EURO (EURO/GBP)
This pair remains within the range it established over the last eight or so weeks. The wider market remains very “sold EURO”, so a correction higher from the EURO should eventuate at some stage. This week will prove interesting, as the Euro-group decision on the Greek bailout funds is released. Political tensions remain high and increase the uncertainty. In the UK the BOE monetary policy meeting minutes on Wednesday and revised GDP numbers on Friday will be the focus. A break of the initial support level of 1.1800 (EUROGBP topside resistance at .8480), will open up the way for some further EURO appreciation.

	Current level	Support	Resistance	Last wk range
GBP / EUR	1.2018	1.18	1.2080	1.1902 - 1.2086
EUR / GBP	0.8320	0.8280	0.8480	0.8274 - 0.8402

Market commentary:

Last week the financial markets saw further intraday volatility, whilst mostly within contained broader ranges. Generally the sentiment within markets remains positive, but there is an underlying vulnerability to shocks that it easily exposed. The uncertainty surrounding progress towards a Greek debt resolution remains the focus. Daily swings in the likelihood of success were seen last week. Most contention seems to surround EU Finance Ministers trust that Greek politicians will carry out the austerity measures they have pledged to make. Current expectations are of a positive announcement to be made at some stage in Europe today (Monday), but delays have been numerous and certainly would not surprise. Elsewhere in the markets, the focus came in Asia late last week. Japan surprised with a 10 trillion YEN quantitative easing (QE) initiative to help stimulate the Japanese economy, and provide a reason to lower demand for the YEN. In China authorities again lowered the reserve ratios on the banking sector. This has the effect of boosting lending and sustains economic growth. A cooling property sector and gloomy outlook for the export sector has prompted the move. Markets start the week with a positive tone, in expectation of progress in Europe, and increased appetite for risk assets following the stimulus added in China.

In Australia last week the news was all about the stronger than expected employment numbers. The debate now focuses on the effect of these numbers on the outlook for the cash rate. The Reserve Bank of Australia (RBA) are unlikely to feel further pressure to reduce the cash rate with numbers like these. This week sees the release of the RBA monetary policy meeting minutes on Tuesday, and these will be closely monitored. RBA Governor Stevens also speaks twice this week, first on Tuesday, and then again on Friday. Any comments with regards to monetary policy will see reaction from the market.

In New Zealand the record 4th quarter retail sales figures released last week saw demand for the NZ dollar climb. This week is relatively quiet for NZ economic data, so the lead will come from the wider markets appetite for risk, and will be driven by outcomes in Europe. Tuesday does see the release on the Reserve Bank of New Zealand’s inflation expectations survey, but in the current environment the results will have very limited impact on the foreign exchange market.

In the United States the economic picture continued to brighten last week. Continued signs the labour market is improving will be welcomed by the Federal Reserve (FED). The labour and housing markets remain the primary concern in the US. With numbers showing improvement, the likelihood of further QE from the FED in the short term has been reduced. With a lower chance of further QE, longer term interest rates have continued to grind higher in the US, and this will support the US dollar overtime.

This week will certainly prove to be very interesting in Europe. The success of the European Central Bank’s (ECB) longer term funding program has reduced the financial vulnerability in Europe somewhat. Ironically, and understandably, as the financial stability has increased, the political gamesmanship has also increased. Greek politicians have seen further pressure from their Euro-zone partners, to provide assurances the spending targets will be met. It is easy to be skeptical of Greek intentions, given the inability to enact commitments to date. Euro-group meetings today (Monday), will hopefully come up with a positive result for Greece and enable the focus to move on to the next step towards the debt swap goal. Economic data will remain of secondary importance to EURO sentiment in the meantime.

The UK economy continues its slow return to growth. With its imported inflation problems finally starting to work their way through the system, the pressure will come off the consumer. Retail sales numbers on Friday were demonstrably better than expected and maybe a good indicator that the consumer is starting to grow in confidence. This week will see the focus on the Bank of England’s (BOE) monetary policy meeting minutes on Wednesday. A change from the previous unanimous decision to increase the level of QE, would indicate a lower chance of further increases to the program. Friday sees the release of the revised GDP numbers for the 4th quarter 2011, and this will be closely watched.

There was surprise in Japan last week, when the Bank of Japan (BOJ) announced a new 10 trillion YEN QE program. They will be very happy with the reaction from the foreign exchange market, as the YEN has given up ground almost across the board since the decision. This week coming sees little on the economic calendar in Japan. The Yen’s performance will likely be driven by its efforts against the US dollar, as it continues to move back from its historic highs. The GDP numbers on Monday showed a -.6% reduction in growth for the 4th quarter 2011 and no doubt will have contributed to the BOJ’s decision to move ahead with the QE program.

The news on the Canadian economy was reasonably light last week. The focus was the inflation number released on Friday and at .2% for the month, this was .1% higher than expectation. This week will again see the lead predominantly from offshore, with only retail sales numbers on Wednesday to provide the focus. The Canadian dollar continues to be under pressure from both the Australian and New Zealand dollars, but should see demand pick up if the US economic numbers continue to improve in the coming months.

-----------------------------

Sam Coxhead is a currency analyst with DirectFX You can contact him here >>