By Danica Hampton The NZD/USD shuffled sideways last night, within a 0.6850-0.6925 range. Overnight, there wasn't much in the way of fresh global news. Concern about Europe's debt woes are still simmering away and the weekend G7 meeting didn't produce any substantial solutions. While European policy makers are adamant the situation in under control, market participants are very still sceptical. Nonetheless, overnight the cost of insuring government debt in Greece, Spain and Portugal eased a little and European equity markets posted modest gains. EUR/USD rebounded from around 1.3620 to above 1.3700, helped along by rumoured quasi-sovereign demand. While NZD/USD was dragged briefly above 0.6920, the strength didn't last long. As Wall Street erased its earlier gains and sank into the red, NZD/USD was pitched back towards 0.6860.

RBNZ Governor Bollard was in the media at the weekend. The tone of his interview suggested the RBNZ is in no hurry to raise rates and we remain comfortable with our view of the central bank waiting until June before hiking. Parliament also opens today and the Government is expected to outline its economic agenda for the year ahead. The Government's announcements - from 2pm NZ time "“ will likely be of particular interest to anyone with a stake in the housing market (given proposed tax changes could have important ramifications for first-home buyers, renters and existing owner-occupiers). While today's proclamations may be light on specifics, there seems to be growing recognition that material policy changes may be in the wind (and so May's Budget should be interesting). While there is a bit to keep an eye on locally, global sentiment and risk aversion will likely be the key influence on NZD again this week. Initial support is seen around 0.6850, and we suspect it will take another meltdown in equities to push NZD/USD through 0.6800 this week. It was a flighty night in currency markets, but there wasn't much in the way of fresh information to drive currencies. While Europe's debt woes are still simmering away in the background, it seems that investors are less fearful the swelling deficits will prove problematic for the global economy. The G7's weekend assurances that the European debt crisis was under control was met with scepticism. Nonetheless, the cost of insuring Spanish and Portuguese debt eased last night (5-year sovereign CDS spreads fell by about 3 bps to 167 and 227 respectively) and European equity markets posted modest gains (the DAX rose 0.76% and the FTSE rose 0.28%). The modest gains in global equities eased some of the fears about the world economy and the USD finished the night weaker against most of the major currencies. EUR/USD skidded to nearly 1.3620 early in the night. However, a generally weaker USD and rumoured demand from quasi-sovereign accounts saw EUR/USD rebound back above 1.3700 as the night wore on. Europe's fiscal woes are likely to remain the key focus for EUR near-term. However, we suspect we will need to see another bout of fresh negative news to push EUR/USD below last week's 1.3580 low. There's not a lot of key data due out of the US this week. Thursday's EU Leaders Summit will front-run next week's EU Finance Ministers meeting, which may shed a bit more light on how policymakers are planning to tackle the escalating debt crisis. We will also get the first estimate of Eurozone Q4 GDP. This week's Chinese CPI and loan data will also be worth watching. China's efforts to curb lending have made investors jittery over the past few weeks and elevated readings from this week's data may well prompt further action from the PBOC. * Danica Hampton is BNZ's Senior Currency Strategist. All of the research produced by the BNZ Capital team of economists is available here.