Greece baulks at German appointed commissioner for its budget

By Mike Jones

NZD

The NZD lost ground relative to the USD, but gained relative to a weak EUR, as the EU/Greece negotiation is yet to find resolution. The NZD/USD currently trades around 0.8190.

Yesterday’s NZ PSI data was largely overlooked by currency markets. It showed the services index step down from its November spike to 56.5, but remained comfortably in expansion mode at 50.6.

The greater driver of the NZD over the past 24-hours was a decline in risk appetite as the Greek PSI negotiations continue to cast uncertainty over the market. Our risk appetite index (scale 0-100%) stepped down from 57% to 54%). The Euro Stoxx 50 fell 1.30%, though the S&P500 is currently clawing its way off its lows, to be down just 0.50%.

In this backdrop the USD was broadly stronger, and the NZD/USD fell from 0.8220 last evening, to touch below 0.8160 early this morning. It has subsequently recouped some of its fall to trade around 0.8190 currently.

Relative to the EUR, the NZD showed volatile trading, but moved higher from around 0.6220 late last evening, to 0.6250 currently.

Both the NZD and AUD were under pressure yesterday as appetite for “risk-sensitive” currencies waned. In trading overnight the NZD/AUD chopped around between 0.7730 and 0.7760, trading around 0.7740 currently.

NZ data releases today (building consents, national employment indicator, household credit) are of 2nd teir importance, and unlikely to impact the currency. Global risk sentiment will continue to be the key driver of the NZD today. A final announcement on the Greek PSI could help to stem its pull-back over the past 24-hours. NZD/USD support is seen at the overnight lows around 0.8160. Resistance is eyed at 0.8240, the level at which it peaked at the end of October.

Majors

Risk appetite declined overnight as negotiations over the 2nd Greek rescue package continue without resolution. The “safe haven” USD and JPY strengthened at the expense of the EUR and “risk sensitive” NZD and AUD.

As markets await announcements from negotiations between Greece and EU leaders, a key sticking point appears to be a German proposal. It suggests appointing a commissioner to oversee the implementation of Greek budget agreements, while Greece is balking at such an infringement of its sovereignty.

In European data, consumer and economic confidence appears to be forming a base at low levels. The EUR has been on a steady decline over the past 24-hours. It currently sits around 1.3120.

By contrast, the USD index has been the beneficiary of the more sombre mood in markets. It rose from around 78.90 last evening, touching 79.40 before returning to trade at 79.20 currently.

Benefiting from a similar “safe haven” bid, the JPY was the only currency to outperform the USD over the past 24-hours, gaining around 0.60 %. The USD/JPY slipped from 76.70 to 76.30 currently. It is heading toward the late October lows around 75.80, just before the Bank of Japan intervened. This highlights the difficulty of currency intervention that flies in the face of “fundamental” currency drivers.

Elsewhere, the Swiss National Bank remains dogmatically tied to its intervention to keep the EUR/CHF at a minimum 1.2000 level. The CHF moved in line with the EUR yesterday, currently trading at 1.2050.

The AUD was under pressure over the past 24-hours as the market was in little mood for extending positions in “risky” currencies. The currency was also undermined by declining interest rate support as swap yields fell. The AUD managed to struggle off its overnight lows, near 1.0530, to trade around 1.0580 currently.

The market will remain fixated on European negotiations today. Some resolution might help to curtail the EUR’s descent today. Though, for now, its recent surge higher seems to be in question. In Australia today, the currency’s local driver will be the NAB business confidence indicator. Tonight, the Chicago PMI will be released in the US.

In the day ahead, the critical support level for the USD index will be at 78.80. If it holds it would suggest a bottom is forming in the downtrend of the past fortnight.

All its research is available here.