By Danica Hampton

After dipping below 0.6900 early yesterday morning, NZD/USD managed to push above 0.7000 last night.

Yesterday's brazenly strong Australian jobs report saw AUD/USD surge more than a cent, from around 0.8770 to above 0.8880. NZD/USD was dragged higher on the coat-tails of the AUD/USD. Australian employment rose a whopping 52,700 in January, well above the 15,000 forecast. The unemployment rate dropped to 5.3%, a vast improvement on the 5.6% forecast and further evidence that unemployment has peaked.

The strong data adds to the case for further tightening from the RBA and market pricing is now consistent with a 50% chance of a 25bps hike at the RBA's next meeting in March.

Overnight, the focus was squarely on the EU Leaders Summit and the EUR. The EU leaders made all the right noises, promising coordinated action to prevent Greece from defaulting on its government debt. However, there was little in the way of detail and this disappointed investors. As a result, EUR was sold heavily against a broad range of currencies. EUR/USD skidded about 2 cents from above 1.3800 to around 1.3600. After starting the week around 0.5000, NZD/EUR climbed above 0.5120 last night.

Locally, the focus will be on this morning's retail sales release. We're looking for relatively robust 1.4%q/q for sales volumes for the quarter (albeit helped by discounting) and 0.2%m/m gain for the month of December.

Global sentiment will remain key to the near-term fortunes of the NZD/USD. For today, we suspect the backdrop of firmer commodity prices and buoyant equities, will ensure dips are limited to 0.6960. Initial headwinds are expected ahead of 0.7050, but we wouldn't be surprised to see NZD/USD push back towards 0.7100-0.7150 over the coming week.

The EUR stole the limelight last night. It weakened against all the major currencies while investors were rapt with the EU Leaders Summit.
The European leaders promised "determined and coordinated action" to safeguard the EUR as they sought to persuade investors that Greece would not default on its government debt. President of the EU, Van Rompuy, said the "EU treaty does allow for Greek financial help". While German Chancellor Merkel said "Greece won't be left alone", but she acknowledged there were rules that must be followed.

While the EU leaders made all the right noises, investors were disappointed by the lack of detail and substance in the assistance plans for Greece. EUR was sold brutally against all the major currencies. EUR/USD fell about 2 cents, from above 1.3800 to around 1.3600. EUR/GBP dived from 0.8840 to nearly 0.8700 and EUR/JPY skidded from above 124.00 to almost 122.00.

Comments from the OECD's chief economist, Padoan, who said the EUR was "strong with respect to both the dollar and the Chinese renminbi" did little to help EUR sentiment.

European equity markets were a little mixed last night (the DAX dropped 0.59% and the FTSE rose 0.57%), but Wall Street posted modest gains. Better-than-expected US jobs data (weekly claims rose just 440,000 vs. 465,000 forecast) helped bolster investor sentiment. The S&P500 is currently up 1.01% and Wall Street's perkiness helped lift EUR/USD off its lows.

European policymakers are expected to put together a rescue package to ensure Greece doesn't default on its debt. However, we're unlikely to get any detail on the assistance, and the conditions that would be attached to any aid, until next week.

* Danica Hampton is BNZ's Senior Currency Strategist. All of the research produced by the BNZ Capital team of economists is available here.