Opinion: NZ$ down near 62 USc as currencies slide across the board

By Danica Hampton As risk aversion rises and equity markets continue to ease we finally have currency markets breaking to new levels. Across the board currencies breaking south and we open this morning with the NZD closer to the USD 62cent level. The London session had looked like it was going to see currencies hold in familiar ranges, ignoring recent days of weakness in equity markets. Especially after the IMF improved their 2010 global outlook & snippets of data like the monthly German Industrial Production release printed strongly. This had seen the NZD trade inside 0.6250/0.6320 through to the New York day. However, the G8 draft communiqué was less certain in its outlook as leaders fret about sluggishness in the global economy and risk appetite nosedived. Helping to send currencies lower, lead by the AUD, was news that for the first time a Chinese buyer of Australian coal cancelled a contract when it was already on the water. More details on this story and the arrest in China of Rio Tinto representatives likely in this morning's Australian media. Weakness in the equity markets is also in part fuelled by concerns about the forthcoming US corporate earnings reporting calendar. Earnings season has started with a vengeance and the first moves are risk reduction, which has seen Yen crosses tumble, the NZDJPY not immune to this and trading sharply lower to the 57.00 level as USDJPY collapsed in the New York session. On the local calendar today, June's edition of Electronic Card Transactions at 10:45AM. Consumers meanwhile, appear relatively chipper, with confidence supported by an improving housing outlook, falling core inflation and a further boost to disposable income from April's tax cuts. All of these factors could combine to see nominal electronic card spending push higher, (previous +1.6%). With the breach of previous support at 0.6250/0.6275 we now open up the likelihood of testing early June levels closer to 0.6150/0.6175 which will provide some relief for beleaguered exporters. The lower NZDJPY also assists, though the NZDAUD risks firming further as we monitor developments in the mining sector. The topside should now see resistance on rallies to the 0.6250/0.6275 window. The G8 that we previewed yesterday have released a draft statement of their L'Aquila meeting, a cynic would say that without central bankers and finance ministers in attendance it lacks financial market clout & it's a vacuous 5,500 words of reading for insomniacs. The statement opens noting "The situation remains uncertain and significant risks remain to economic and financial stability," a sentiment we can't argue with and continues to acknowledge the work done and still to be done "“ and it's mood helped colour weak sentiment in currency markets that were already struggling. Australia has labour force data today (1:30PM NZ time), and the market is looking for a fall in employment numbers, this would take unemployment to 5.9% as slowing economic activity impacts. The median forecast is for a -20,000 outcome for June's numbers. Tonight we have the Bank of England meeting and the prospect of the MPC expanding the gilt buying programme within its quantitative easing policy. The BoE's QE policy was formally unveiled on 5 March, & is fast closing in on its £125bn pre-announced total, the question facing markets is will the MPC announce Thursday that it will use the full £150bn authorised by the Treasury and then lay out its plans for QE from that point, including any additional purchases, which would also require a further authorisation from the Treasury. * Danica Hampton is BNZ's Currency Strategist. All of the research produced by the BNZ Capital team of economists is available here.