Opinion: Kiwi pushed back above 50 USc after "remarkable rebound" in global equities

By Danica Hampton After sliding to around 0.4920 yesterday morning, NZD/USD climbed above 0.5050 last night. Global equity markets staged a dramatic recovery last night amid hopes the financial sector is on the road to recovery. A memo from the CEO of Citigroup reports that strong earnings were made in the first two months of this year and the bank was on track to report its strongest quarterly earnings (excluding taxes and special items) since Q3 2007. Shares in Citigroup surged about 30% and this triggered a broad bounce in financial stocks. The FTSE rose 4.3%, the DAX climbed 5.3% and the S&P500 is currently up 5.5%. The remarkable rebound in global equities encouraged investors to trim "safe-haven" currency positions and this saw the USD weaken against a broad range of currencies. Quasi-sovereign and Asian central banks were reportedly heavy sellers of USD. Against a generally weaker USD, NZD/USD pushed up towards 0.5050 as short-term speculative players were squeezed out of short NZD positions. However, selling from longer term real-money accounts and macro-driven funds knocked NZD/USD from its highs.

NZD/USD is really just treading water within familiar ranges. On the downside, support is seen around the 0.4900-0.4920 region (and a break below last week's 0.4895 low is needed to suggest the downtrend is gaining traction). On the topside, initial headwinds are expected around 0.5050-0.5075, but the currency has the potential to be squeezed back towards 0.5150-0.5200 in coming sessions should we see a substantive recovery in global equities and risk appetite. Locally, keep an eye out for the Q4 terms of trade data. In nominal terms (the ratio of export to import prices) we look for a drop of 5.5% for the quarter. However, we wouldn't be surprised to see a bit of a rebound in the volume of goods exports. A strong surge in global equities reduced "˜safe-haven' demand for USD last night. As a result, the USD weakened against most of the major currencies. Global equities staged a remarkable recovery, bolstered by glimmer of hope in the financial sector. A memo from the CEO of Citigroup, said the bank had made a profit in the first two months of 2009 and its quarterly performance to date (excluding taxes and special items) was the best since the third quarter of 2007. Shares in Citigroup, which sank below US$1 last week, surged more than 30% and this helped fuel a broader bounce in financial stocks. The FTSE rose 4.3%, the DAX climbed 5.3% and the S&P500 is currently up 5.5%. EUR/USD rebounded last night, from around 1.2650 to above 1.2800, as investors' trimmed "˜safe-haven' currency positions. Reportedly, Asian central banks and quasi-sovereign accounts were also buyers of EUR. However, the currency couldn't sustain its gains. EUR/USD swiftly slipped back below 1.2700 amid concern the ECB's seeming reluctance to cut rates would prolong the Eurozone recession. ECB council member Weber said there was scope to cut rates further, but 1% would likely be the trough in the easing cycle. ECB council member Smaghi said cutting interest rates to zero would only be appropriate if the Eurozone was threatened by deflation (he added that sustained deflation was not presently a risk). Despite the generally weaker USD, GBP/USD fell from above 1.3900 to nearly 1.3700 after data suggested a worsening UK economic outlook. The BRC retail survey showed that retail sales fell 1.8%m/m in February. Meanwhile, industrial production fell -12.8%y/y (vs. -11.7% forecast) "“ its sharpest decline since January 1981. Finance Ministers from the G20 nations meet this weekend (in preparation for a summit of all G20 leaders on April 2). There is a growing rift between the US and Eurozone over whether governments have done enough to fight the financial crisis. While governments in the US, UK and Japan have taken a "no-holds-barred" approach, European policymakers have been more measured and content to see how things unfold. This weekend's conference is expected to focus on steps each nation can take in order to support the global economy. Currency markets are unlikely to be a major feature. * Danica Hampton is BNZ's Currency Strategist. All of the research produced by the BNZ Markets team of economists is available here.