Despite all this and broad currency strength that saw the NZD challenge our 0.6625/0.6650 window of resistance, currency markets have retreated somewhat in the latter part of the overnight session. Ultimately a fall in U.S Consumer Confidence will attract some blame for the retreat of major currencies, as the July update from the Conference Board fell to 46.6 despite forecasts for a 49.0 outcome. Ahead of tomorrow's OCR meeting, we have this afternoon's NBNZ business survey. This really could shift either way this time, following its constant clawback over prior months, (previous +6.0). Prior to the 3pm release of that we have at 1045am June Building Consents, which seem set to reveal a clearer bounce in residential but, just as significantly, underlying weakness in non-residential activity. We believe the Bank will, as it should, stand its ground amid overly excited markets "“ in essentially reiterating the cautious undertones of its June Statement. It might even leave in the "or below" part of the "we expect to keep the OCR at or below the current level through until the latter part of 2010" phrase of its June MPS. We think it probably should, for good measure. To be sure, signs of some sort of recovery continue to bud. The economic information "“ both in New Zealand, and abroad "“ has, by and large, improved. So too have financial markets continued to exhibit signs of repair. The RBNZ will have to acknowledge these. However, it's also true the economic and financial backdrop remains fragile and the most uncertain it's been in many a decade. We are still feeling our way through a thick fog, in uncharted waters, that only the benefit of much more time will make clear. As much as things might genuinely brighten, we might next encounter further hiccups or major disappointment. As it is, the world and local economies have, at best, stopped contracting. While many Asian economies have exhibited signs of bouncing back, it will take another three to six months to see if this is more than a dead tiger bounce. And while the rate of contraction in most other countries is abating, it's certainly signifying continued slippage, into a bigger hole, in relation to supply. Even if there is a genuine pick-up at hand the RBNZ should hardly be concerned by it at this early stage, given the large amount of economic slack that will keep CPI and wage pressures muted for a good while yet. On the day, a solid base for the Kiwi appears in the first instance at 0.6500/0.6525 and again our preferred resistance level is the 0.6625/0.6650 window. Even before the US data, risk appetite and the gorged bulls of the FX market were already in a state of limbo, easing back from London morning highs as equity markets across Europe traded in negative territory after some two weeks of consecutive daily gains. As we highlighted yesterday, the markets are at an intriguing juncture, where market positioning may make headway on further sustained greenback selling slower going and somewhat frustrating if some of the recent strength in equity and commodity markets is surrendered. Hearings being held by the Commodity Futures Trading Commission (CFTC) are also adding a note of caution, while ostensibly the hearings focus on whether there should be position limits in energy and agriculture contracts the politically driven hearings helped put a roadblock in the way of FX markets who are wary of central government interference in the operating rules of the CFTC. The hearings continue tomorrow and then pause to reconvene in the first week of August. Tonight we have the Fed's Beige Book, though after Bernanke's semi-annual testimony last week there should be few surprises.

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