By Dan Bell
The NZD/USD open at 0.7775 this morning, having rallied 100 points from Tuesday’s lows.
There has been no good news out overnight, yet risk is ‘back on’ and Greek elections looming large, however there were reports of large exporter buying interest and stop losses being triggered which could help explain the move.
The EUR/USD initially dropped after Spanish bonds yields surged higher, reaching euro-era record highs. Spanish 10-year bond yield touched 6.74% - a level widely seen as unsustainable, while Italian yields also moved sharply higher, with their 10-year bond now yielding 6.17%, on concerns they may be the next domino to fall and require a bailout.
Fitch Ratings lowered the credit ratings on 18 Spanish banks, citing more potential loan deterioration on the back of falling Spanish real estate prices which is down 11% the past 12 months, and over 31% beneath their highs.
Fitch also warned of the risk of further EU sovereign downgrades unless policy makers can demonstrate they can end the region’s debt crisis. Fitch was quoted as stating there’s “no light at the end of the tunnel soon”.
In other cheery news, the IMF stated there are significant financial-stability risks to the global economy which is fueling major uncertainty. The IMF said the euro-zone needs very accommodating monetary policy, and direct injection of funds into the regions weak banks, and growth friendly policies.
US budget deficit rose to USD$125 billion in May, twice that from April.
The median U.S. household lost nearly 39% of its wealth from 2007 to 2010, as net worth slide to 1992 levels (on an inflation-adjusted basis).
In spite of all the above negativity, the US S&P500 index closed 1.2% higher, and Dow Jones up 1.3% on the day, while the European & UK bourse also showed solid gains...
The 19-commodity CRB Commodity Index was essentially flat on the day. Oil prices rose for the first time in 3 days, gold prices increased 1% to USD$1609. Copper dipped to USD$7,395 a tonne, as did most other base metals.
The NZD opens at 0.7775 USD, 0.7810 AUD, 0.6215 EUR, 0.4990 GBP, & 61.85 JPY.
There is nothing scheduled on the domestic data calendar today. However the RBA Governor is speaking today, along with the release of Westpac Consumer Sentiment figures. However, it will be the on-going euro-zone debt crisis which will continue to be the primary driver behind currency movements.
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Dan Bell is the senior currency strategist at HiFX in Auckland. You can contact him here
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