The Opening Bell: Where currencies start on Wednesday, November 16, 2011

The Opening Bell: Where currencies start on Wednesday, November 16, 2011

By Dan Bell

 

The NZD/USD is weaker overnight trading to a low of 0.7672 as EU sovereign debt concerns remain in focus. We open around 0.7700 this morning tracking a more positive afternoon for US stocks.

Italian government bond yields have pushed back to 7% again while Spanish yields are up almost 20 basis points to 6.3%. French 10-year bond yields are up 50 basis points in the last week, pushing the spread over safe haven German bonds to a euro-era high of 173 basis points. Contagion risk is increasing by the day as these yields push higher and EU economies continue to slow!

Economic data from the US was better than expected with Retail Sales up 0.5% in October.  Overall the recent flow of data from the US has been better than expected lately which is reducing the likelihood of further quantitative easing from the US Fed and making the USD more attractive.

The NZD has underperformed against most major currencies overnight. Against the AUD we traded to the lowest level in 6 months to make a low around 0.7550. RBA Monetary Policy Meeting minutes yesterday were not as dovish as the market was expected - the RBA considered leaving rates on hold but decided to cut 25 basis points given med term inflation had eased and EU debt crisis.

Against the European cross rates we are also weaker this morning and open around 0.5680 EUR and 0.4870 GBP.

Fonterra auction results overnight saw prices up 2.6% - which follows a 1.2% drop in previous auction. The index has only gone up twice in the last four months.

Not much to report from NZ today. From Australia we get Westpac/MI Leading Index of Economic Activity at 12:30 and Wage Price Index at 1:30. Tonight the Bank of England announce interest rates and the US release Industrial Production, CPI and Treasury TIC Data.

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Dan Bell is the senior currency strategist at HiFX in Auckland. You can contact him here

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