News and Opinion, sponsored by RaboPlus

By Danica Hampton

For the most part it probably appears as though markets have taken something of a breather, as we open this morning with the NZD at the 0.6350 level, and major currencies also little changed from 24 hours ago.

The reality though is a fractious overnight session where updates from the ECB, BoE and BoC (see next section) had passed with little change or fuss but flows seen to be associated with the unwinding of currency hedges for the proposed Chinalco – Rio Tinto deal sent the AUD and GBP sharply lower, so of course the NZD trailed in their wake.

For a period of time in the London afternoon the sharp sell off in GBP and AUD held sway for traders and clients alike, though eventually a mix of real money and macro accounts showed a bias to sell USD and sparked a recovery to this morning’s opening levels.

The ANZ commodity export prices for May, published yesterday afternoon, were mixed. The world price index increased 2.7%, naturally supported by the falling US dollar by which most of the index is denominated. Wool and beef saw decent gains, as did the dairy world price index, interestingly enough, with +5%. The latter is in sharp contrast to the big fall registered in Fonterra’s latest auction.

(more…)

By Danica Hampton

Once more we awaken to a stronger NZD, with the USD having lost further ground across all currency markets. Despite media sound bites from both current and former Chinese officials, as well as US Treasury Secretary Geithner about the USD being regarded as the world’s reserve currency, the market has lent on the USD.

Instead, traders and leveraged accounts listened to Russian media that suggested emerging market leaders may discuss the idea of a supranational currency when officials from the BRIC nations meet later this month. This is not anything new from President Medvedev, he first spoke of this in March, but at the moment it simply poured fuel on the market’s fire, helping to extend the greenback’s losses.

The rising NZD is of course a big issue for most of our clients; can New Zealand really afford this robust exchange rate, so very early in the supposed recovery cycle? We don’t think so, despite what the international community may think.

(more…)

By Danica Hampton

The major mission in yesterday’s Budget was to convince the rating agencies that NZ deserves to maintain its current world standing. It managed to do this by containing expenditure and forecasting NZ’s net debt position to stay around 40% of GDP (well below the 70% that seems to have become the norm in the US, UK and Europe).

However, Treasury forecasts for the NZ economy were relatively gloomy. Despite implicitly assuming a 2.00% OCR and that the NZD/USD falls to around 0.5000, Treasury have GDP dropping to 1.7% for the March year 2010 (BNZ -1.0%) and a tepid recovery of just 1.8% the following year (BNZ = 3.0%).

The ratings agencies were encouraged by the Budget. Standard & Poor’s upwardly revised the outlook on the ratings for NZ to “stable” from “negative” and reaffirmed its credit rating at ‘AA+/A-1+’. Despite Treasury’s gloomy growth forecasts, the upward revision to NZ’s credit rating outlook saw NZD/USD bounce from around 0.6120 to nearly 0.6200.

(more…)

By Danica Hampton

NZD/USD climbed above 0.6200 on Friday night to a 7-month high. Once again, the key theme was USD weakness.

Increasing concern about the US fiscal deficit, worries the US may lose its triple-A credit rating and talk that Asian central banks are diversifying foreign reserves saw the USD weaken against a broad range of currencies. In fact, the USD Index fell 3.6% last week to a 5-month low. Against the backdrop of a generally weaker USD, solid demand from real-money investors and Asian retail accounts saw NZD/USD climb from around 0.6120 to nearly 0.6240 on Friday night.

However, NZD/USD has opened the week under 0.6150, on a softer footing, thanks to the announcement of US dairy subsidies over the weekend. US Agriculture Secretary Tom Vilsack announced subsidies for 92,000 tonnes of dairy exports, saying it was in response to the European Union’s export subsidies earlier in the year. Both Fonterra and the NZ Trade Minister have strongly criticised the announcement, which has come in spite of the recent pledge by G20 nations, including the US, to refrain from protectionism.

(more…)

By Danica Hampton

The NZD has started the week on a bright note, climbing away from the technically significant 0.5830/0.5840 level thanks to an FX market that has shown a healthy ongoing appetite for risk.

Sentiment is fickle and last week’s European and in particular German data should not be discounted as an influence or reality check, but to start the week a mix of the Indian election results, Japanese Consumer Confidence and UK housing statistics have spurred gains for the NZ$ on the coat-tails of a firmer AU$ and GBP in particular.

The appetite for investment in risk sensitive currencies is also evidenced by the announcement of interest in NZ$ Uridashi, as Rabobank Nederland NV launches a NZ$419mio 2 year issue through Daiwa Securities which will be offered from May 21 to 29. Our flows once again showed real money demand at times, soaking up the supply from micro traders and those betting on a break lower in the NZ$’s fortunes.

Yesterday’s local data releases showed the service sector took a turn for the worst in April. The PSI for April was 43.7, down 3.4 points from March, ending a run of relatively improving results for the sector.

(more…)

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.

(more…)