By BNZ Currency Strategist Danica Hampton

NZD/USD has traded choppily within a 0.6050-0.6350 range over the past 24 hours.

Overnight, the US government announced it will invest up to US$250 to buy equity states in US banks. The plan comes hot on the heels of similar actions taken by the UK and European governments. Hopes the official measures will shore up the financial sector saw global equities recover last night. The Nikkei climbed a remarkable 14%, the FTSE rose 3.2% and the DAX rebounded 2.7%.

As fears about the financial crisis dissipated, the rebound in investor confidence encouraged demand for high-yielding currencies like NZD. Indeed, NZD/USD surged from below 0.6100 yesterday morning to nearly 0.6350 last night.

However, the lofty levels in NZD/USD didn't last. EU Group Chairman Juncker cautioned there was "no reason to declare the end of the financial crisis". And lacklustre earnings outlooks for Pepsi-Cola, Intel and Microsoft saw US markets erase their gains and the S&P500 closed down 0.5%. The slide in US equities also took a toll on EUR/USD and before long it was sitting back around 1.3650.

For today, uncertainty about the global outlook means currency markets will continue to take intra-day cues from global equities. Initial support is seen around 0.6140-0.6150. On the topside, expect headwinds around the overnight high of 0.6350.

While a sustained improvement in risk appetite and global equity market confidence has the potential to see the NZD/USD extend its gains in the near-term, we think bounces will be limited to the 0.6400-0.6450 region. After all, the recently announced official measures are unlikely to stave off a global recession, which combined with a sharply slowing NZ economy, further RBNZ interest rates cuts and falling NZ commodity prices will likely see the NZD/USD trend lower in coming months.

The USD edged lower against most of the major currencies last night, as global equity markets stabilised and governments around the world stepped up measures to address the financial crisis.

The US government announced it will allot up to US$250b (from the US$700b rescue package) to buy preferred equity stakes in Goldman Sachs, Morgan Stanley, JP Morgan, Bank of America (including the soon to be acquired Merrill Lynch), Citigroup, Mellon Bank and State Street.

US federal regulators also announced they'd guarantee new bank debt and expand insurance for non-interest-bearing accounts. They also issued new details on a plan to backstop the commercial paper market, to shore up funding for larger corporates.

There are also tentative signs that the recent raft of official measures may be easing inter bank lending pressures. The 3-month US TED spread (difference between yield on T-bills and bank bills) narrowed to 422bps well down on Friday's 459bps. And reduced "˜safe-haven' demand for government debt has seen 2-year Treasury yields climb 18bps to 1.76%.

The slew of official measures saw global stocks continue to recover last night. The Nikkei climbed a remarkable 14%, the FTSE rose 3.23% and the DAX rebounded 2.7%.

As fears about the financial crisis and global recession dissipated, EUR/USD climbed from around 1.3600 to above 1.3750 (despite a lacklustre German ZEW Survey) and GBP/USD surged from around 1.7400 to above 1.7600. However, the glitzy levels didn't last long.

While the S&P500 opened up more than 4%, lacklustre earnings outlooks for Pepsi-Cola, Intel and Microsoft saw US markets erase their gains as the night progressed. At the same time, EU Group Chairman Juncker cautioned there was "no reason to declare the end of the financial crisis". The slide in US equities also took a toll on EUR/USD and before long it was sitting back around 1.3650.

For a rebound in EUR/USD to be sustained, we'll need to see concrete evidence that the rescue efforts are actually working (i.e. the cost of inter bank lending starts to fall, banks receive the capital they need and credit markets show signs of functioning again). Nonetheless, while the recent raft of official measures look likely to shore up the financial sector, they are unlikely to prevent a global recession. Consequently, we continue to think the medium-term trend in EUR/USD is lower.

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