By Danica Hampton

The past 24 hours have seen the NZD broadly match the major FX markets, at times still running with the momentum of the previous night's sharp sell off but meeting ongoing investor demand on weakness that sees us open this morning at the US59.8 level.

While the data of the previous night, and also last night is hardly an endorsement of the "green shoots" mood, what our flows showed is that real money at both a wholesale and retail level is looking for a home and prepared to take on some risk once again. Our flows also show, as they did the previous night that those leveraged accounts late to join the party are the first to exit when the music on the turntable isn't all to their liking.

Overnight US Initial Claims data for the week to May 10 printed at 637k, up from 605k the previous week with Continuing Claims climbing to 6,560k (previous 6,358k). PPI for the month of April printed at +0.3%, above expectations with food and energy prices on the rise, though YOY the PPI is at -3.7% which was as forecast.

Equity markets across Europe battled to print small gains but the mood on the western shores of the Atlantic is brighter with the S&P gaining a little over 1% thanks to the financial and technology sectors. A reduction in Libor was seen as encouraging for some of the regional names amongst the financial stocks.

Flows from custodial names and Asian sovereign names are highlighted as demand for the AU$ & EUR which the NZ$ has ridden the coattails of overnight. This macro demand for FX overriding any of the shorter term focused accounts that had rushed to exit FX risk in the past 24 hours.

The large volumes of real money demand forcing a squeeze on traders through out the NY session after earlier sell offs in the London morning. Our flows in the NZD also show steady retail interest from Asia as money is tentatively taken out from under the mattresses and put to work in financial markets. Once again there's some signs of investor interest in NZ$ denominated investments.

While recent NZ business surveys look to be coming back from the brink of complete collapse, it would seem premature to see this as the start of a trend toward genuine expansion, if any. Overall, the surveys are still telling of a contracting economy, just less alarmingly so.

The latest example was yesterday's Performance of Manufacturing Index, which "rebounded" to 43.7 in April, from 40.3. Just like its global counterparts, it's a (further) encouraging step in the right direction.

But risks remain of a near-term faltering, in our view. In this respect, the international economic news (along with equities) will be paramount over the coming weeks. This is especially so as there is not a lot of local data to hang our hats on. Indeed, we'll have to wait two full weeks for anything of substance, in the form of the Budget, of 28 May, and the just-as-important NBNZ business survey, for May, published the same afternoon.

On the day we would expect dips to be shallow, the 0.5930/0.5950 level now likely as support ahead of the previously mentioned 200day moving average at the 0.5850 level. The topside, if we again see Asian demand today, would mean the 0.6025/0.6050 level is likely as resistance for our market.

Tough times in the retail sector will again likely be reflected in today's retail trade update. The partial electronic spending indicators for March suggest nominal spending could have dipped during the month and, as such, we expect -0.6% m/m. Further, the general downtrend in nominal spending during the opening three months of the year will look even worse in volume terms.

At times, it can be quite difficult to see the wood for the trees, particularly at the moment amid all the talk about global "green shoots". For an update of our medium-term NZD/USD view, refer to our recent publication "NZD/USD: 2009 Roadmap Revisited."

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