Debt concerns for Spain and its regions mount despite official denials; Aussie building permit levels surprisingly weak

By Kymberly Martin

NZD

The NZD/USD has continued to drift a little lower, sitting just below 0.7990 at present.

Yesterday’s NBNZ was maybe a touch soft, though showing divergent trends between an optimistic construction sector and cautious agriculture sector. Still, the headline result was nothing to alarm markets, being consistent with GDP growth at 2.25% by early next year. The NZD took the release in its stride, but drifted off overnight as global risk appetite subsided a little.

The NZD was fairly range bound relative to its key European peers. The EUR itself was a touch weak as Spanish concerns one again came to the fore. The NZD/GBP is seeking support at the 0.5040 level which marked its low in late July.

The NZD/AUD appears to be finding some support. Weak building approvals data yesterday saw the market increase expectations of RBA rate cuts for the year ahead.

The market is now looking for almost 80bps of cuts. Our NAB colleagues central view is for no further cuts.

There are no key local data releases today. The market will be more focused on events to take place on either side of the Atlantic this evening.

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Majors

As trading ranges remain quite tight, the USD strengthened on the back of increased Eurozone concerns overnight.

Our risk appetite index (scale 0-100%) slipped a little further to 64%, and equities recorded negative returns overnight. (The Euro Stoxx  50 closed down 1.25% and the S&P500 is currently down 0.60%).

Spain was back in the headlines. IMF headlines confirmed Spain has not asked for IMF aid and PM Rajoy said the government would delay deciding whether to seek a bail-out until conditions are clear. In the meantime, following on from the Spanish region of Catalonia’s seeking aid, another couple of provinces are in the headlines with funding needs. Spanish bond yields are higher. European equities are down, also assisted by expectedly weak Eurozone confidence data. The EUR/USD slumped from 1.2560 to around 1.2510.

Conversely, the USD index moved up from 81.45 to sit around 81.70. Still, markets appear to still be a little bit in ‘wait and see’ mode ahead of tonight’s Jackson Hole meeting and next week’s ECB meeting.

The AUD, along with the NZD, continued its drift lower yesterday. The AUD was on the back foot after the release of surprisingly weak AU building approvals data. Approvals for July fell 17.3%m/m (-5% expected). The AUD/USD slipped to find support at 1.0280 overnight. AU private sector credit data will be released today, though the market will likely be looking ahead to tonight.

Eurozone unemployment data will be released. The University of Michigan confidence indicator will also be released, though the key focus will be the launch of the Jackson Hole gathering. The focus will be on Bernanke’s speech. However, we expect maybe not too much new information will be provided to a very expectant market. The Fed may prefer to maintain its FOMC meetings as the platform for revealing new policy initiatives.

Event Calendar: 31 August: JN CPI & jobless rate; EU CPI; ECB’s Coeure & Nowotny speak; US Fed’s Bernanke speaks at Jackson Hole Economic Symposium

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