By Dan Bell
The NZD/USD bounced off recent lows to trade just above 0.7870.
Short-covering in the EUR/USD was the main catalyst for the higher NZD, however the financial markets remain very bearish and extremely concerned about the euro-zone sovereign debt situation, with a Greek debt default especially worrying.
German Chancellor Angela Merkel and French President Nicolas Sarkozy met to discuss ways to boost euro-zone growth, as member nations struggle in the face of the sovereign debt crisis and rising unemployment.
Merkel mentioned Greece would not get its next aid tranche unless it agrees with creditor banks on a bond swap very soon. Failure to do so may result in a disorderly debt default by Greece, or possibly a move back to the Greek Drachma – this would be massively negative for the global financial markets (and the NZD).
Equity markets were little moved overnight. Gold traded flat, Copper fell 0.9%. while base metals rose with Aluminium and Nickel the standouts (2.0% & 1.8% higher respectively).
Base metals fell 20-26% in price during 2011. However, Goldman Sachs is picking base metals (as well as Gold and Oil) to be the top commodity picks for 2012 due to tight fundamentals and potential Iran conflict.
Iran has started an uranium enrichment plant inside a mountain and sentenced an American to death for spying. Both events will provoke Western anger and increases the geo-political risk for the region
NZ Building consents will be released today. There is not much else of interest on the data calendar today.
Current indicative levels are: NZD/USD 0.7870, NZD/AUD 0.7700, NZD/EUR 0.6170, NZD/GBP 0.5095, and NZD/JPY 60.45.
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Dan Bell is the senior currency strategist at HiFX in Auckland. You can contact him here
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