By Danica Hampton Risk appetite is in fine fettle, the VIX continuing on its southward path as across the board currencies storm higher. Last night it is once again the GBP rally that drags currencies along in its wake, the EUR and NZD keen followers of fashion. Flows across the desk have tended to show NZD demand coming again from the local commercial and institutional sector, primarily on the NZDAUD cross which on a 77cent handle appeals for hedging purposes. Aside from these flows the last 24 hours in FX appears to have been dominated by the leveraged accounts, joining the party and building or adding to existing USD shorts rather than the past day's real money & sovereign name interests. A cynic would say the lemmings are on board, chasing the momentum and we must be in sight of the top. However, the positive sentiment is strong and without as yet a catalyst to change the mood then we may have to accept that there is a ground swell in the market that could well see further gains in the coming week.
The NZD/USD has progressed to trade towards the US 61 cent level, as the GBP rushes another 1.7% higher and the EUR trades 1.3% higher on the day to the 1.3800 level. The remainder of the week's NZ releases are loaded into today's calendar. The morning's Immigration figures, for April, seem set to substantiate the recovering trend of late, while tourism flows might look no so bad on year-ago comparisons simply because April 2008, unusually, did not have an Easter in it. But this wouldn't deny a negative trend in tourist arrivals - one which will only get worse this year. Credit card billings will be an important cross-check on the mild ECT data we've already witnessed for April, and might well bounce back up simply because they fell so hard in March (and for the fact 1 April saw the introduction of the latest personal tax cuts). The quarterly RBNZ survey of expectations will no doubt confirm abating inflation expectations and a sombre outlook for the economy more generally. The NBNZ Regional Trends survey will give some very broad hints about Q1 activity. We'd be surprised to see any clear signs of expansion. Australia has secondary data up for consideration,; monthly new motor vehicle sales, Consumer Inflation Expectations and the Q1 House Affordability survey. Traders today will eye the 0.6110/0.6130 window keenly as the area the NZD failed at earlier this month. A further failure to progress could draw the recent bulls to take profit on their "longs". Ultimately though, the NZD's fortunes will mirror those of the major currencies. Support on the day should be evident on any pullback to the 0.6010/0.6030 level. Equity markets have tended to make small gains in the last 24 hours, underpinning the healthy risk appetite but they are not the sole cause of the markets enthusiasm. The sentiment for a weaker USD has it's groundings in expectations that the central banks & governments of the western world have made a difference with their monetary and fiscal policy largesse of recent months. Though there are also some stories and commentaries in the background, for example; recent trade deals not based in USD (Brazil & China) and the level of US debt and how it should be rated, that are having some influence on market sentiment and direction. In terms of overnight news and releases; we await the minutes of the FOMC's April meeting at 9am this morning (NZT). The BoE minutes real news was that a larger £75billion move on QE was discussed. When we get to the end of the current QE spending in August we are unlikely to be in a position where the MPC can say that the size of the policy has filled the 'hole' in nominal GDP with any certainty. So some further extension of QE in August looks on the cards. Finally, as if they really needed any encouragement, the Portuguese Finance Minister got a media sound bite saying "higher euro has not been a concern"¦in recent months". The forex lemmings thank you for your help Senor Fernando Teixeira dos Santos. ____________ * Danica Hampton is BNZ's Currency Strategist. All of the research produced by the BNZ Markets team of economists is available here.