By Mike Jones
NZD
After marching higher on Friday, the NZD has paused for breath over the past 24 hours. At around 0.8220, the NZD/USD is a smidge below levels prevailing yesterday morning.
Financial markets played the waiting game overnight. European finance ministers are still trying to agree on the terms for a Greek bailout deal. And we are no closer to a resolution on the fiscal cliff.
Indeed, a key player in the debate admitted little progress has been made to date.
Investors’ patience is starting to wear thin. This is being reflected in a marginally lower tolerance for ‘pro-risk’ assets like stocks and the NZD/USD.
The longer the waiting game goes on, the heavier toll we can be expected to be taken on risk appetite and the NZD/USD. Keep an eye on the newswires today for any Greek headlines.
There is a risk the Eurogroup’s discussions stall once again (see Majors). This scenario could push the NZD/USD lower to test 0.8145 support.
The recent NZ economic news has been unequivocally soft (our NZ economic surprise index, on its own, is consistent with the NZD/USD at 0.7500). But this week’s local data may help restore faith in the NZ recovery.
This starts with today’s October merchandise trade figures. We’re expecting a $336m monthly deficit, above the $526m shortfall expected by the market. Such a result would slow the worsening in the annual trade deficit.
This afternoon’s (3pm) RBNZ inflation expectations will reinforce the near-term inflation headroom the RBNZ currently enjoys. The key 2-year-ahead expectations measure should ease further from last quarter’s 2.3%, in line with Q3’s CPI low-ball.
On the day, initial NZD/USD resistance is expected on any bounces towards 0.8255, although we could see a break through here on a Greek deal being agreed upon. Dips towards 0.8145 should continue to attract buyers, ahead of the deeper support level at 0.8080.
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Majors
After ending last week full of enthusiasm, investors adopted a slightly more cautious tone overnight, in quiet trade. Pro-risk currencies like the NZD, CAD, and AUD dribbled lower while the GBP, EUR, and CHF have tracked narrow sideways ranges.
We still don’t have a deal on Greece. Nervousness about more delays and the possibility of a Greek government collapse has taken some of steam out of investors’ risk appetite.
In the US, reports of strong Thanksgiving Day retail spending have been trumped by worries about the fiscal cliff. Democratic Senator Durbin admitted little progress towards a resolution has been made.
Negotiations look set to drag on well into December and possibly into early January, further unnerving investors.
Global equity markets have dipped into the red, the VIX index (a proxy for risk aversion) is a shade higher around 15.8, and ‘risk-sensitive’ currencies have given up a small part of Friday’s gains.
The EUR has tracked a 40 point sideways range as it awaits news on Greece.
The sticking point in the Eurogroup’s discussions on a Greek deal appears to be the OSI. The IMF wants official sector holders of Greek debt (mostly the ECB) to take a haircut on their holdings.
Not only does the ECB not want this, but neither do the Eurozone countries who would be obliged to then provide more money to recapitalise the Central Bank.
Once again, it will be a case of watching the newswires today. If a Greek deal is delayed, we suspect the 1.2875 support level on EUR/USD will be tested.
If a deal is confirmed, a bounce into the 1.3000/20 region looks likely, although we’d expect gains to run out of steam into 1.3100 without a US fiscal cliff deal.
Other News:
*Former Bank of Canada Governor Carney is named as the next Bank of England Governor, starting in May 2013.
*Pro-independence parties in Catalonia win the regional election, strengthening a drive for a referendum on ceding from Spain.
*US regional (Chicago and Dallas) manufacturing indices lose ground relative to the previous month.
Event Calendar:
27 November: NZ trade balance; AU balance of payments; CH industrial profits; NZ RBNZ inflation expectations; UK GDP; US durable goods orders; US consumer confidence; 28 November: AU construction work; US new home sales; US Fed's Beige Book; 29 November: NZ ANZ business confidence; EU German unemployment; US GDP; US pending home sales; 30 November: NZ building permits; JN jobless rate; EU German retail sales; US personal income; US Chicago PMI; 1 December: CH manufacturing PMI.
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