Opinion: Kiwi below 58 USc after slew of bad news

Opinion: Kiwi below 58 USc after slew of bad news
By BNZ Currency Strategist Danica Hampton The optimism prevalent in currency markets through the first few days of 2009 has worn off. Over the past 24 hours, the NZD/USD has fallen from above 0.5900 to below 0.5800. Overnight worries about the global outlook have escalated following a slew of negative news. Ratings agency Standard and Poor's put Spain on negative credit watch, a court ruled that South Africa's President Zuma may now face corruption charges and Russia's central bank confirmed it has widened the RUB band. In the US, Atlanta Fed President Lockhart warned that US GDP looked on track to fall 4-6% in Q4 and growth was likely to be similarly lacklustre in Q1 2009. In currency markets, renewed concern about the global outlook has seen investors to sell growth sensitive currencies like NZD in favour of the relative safety of USD and JPY. In terms of flows, real-money accounts out of Asia as well as more short-term speculative players have been noted sellers of NZD. NZD/JPY fell from above 53.00 to below 51.50 last night and NZD/USD fell below 0.5800 for the first time since January 2. Locally, all eyes will be on today's Quarterly Survey of Business Opinion (QSBO), which is likely to show a worsening of local economic sentiment. We'll also be keeping an eye on the labour market indicators for insights into the depths the local employment situation may reach over coming months. Looking ahead, the combination of a deteriorating global backdrop and soft local data should ensure bounces in NZD/USD are limited. For today, we suspect the topside will be limited by 0.5830-0.5840. On the downside, initial support is seen ahead of 0.5750, but a deeper correction back towards 0.5650 looks likely in coming sessions. The USD, JPY and CHF strengthened against most other major currencies last night as renewed concerns about the global outlook saw investors seek out the relative safety of these currencies. The New Year's optimism has well and truly worn off. A string of negative news, combined with last week's batch of weak global data, has provided a reality check for market participants. Overnight, ratings agency Standard and Poor's warned it may downgrade Spain's sovereign debt rating (it put Greece on credit watch last week). Deputy Governor at Russia's central bank confirmed they have widened the RUB's trading band (the RUB has fallen more than 7% against the USD since January 7). In the US, the Conference Board employment trend index fell 1.6% to 99.6 and the accompanying comments suggested non-farm payrolls could drop by another 2m in 2009. Atlanta Fed President Lockhart warned that "incoming data suggest fourth quarter GDP contracted somewhere between 4 and 6%" and the performance in Q1 will likely be similar. Global equities fell moderately. The Nikkei slipped 0.5%, European indices fell between 0.5-1.5% and the S&P500 is currently down 2.10%. In currency markets, renewed fears about the outlook for the global economy saw investors ditch growth sensitive currencies like EUR, GBP, AUD and NZD in favour of the relative safety of USD and JPY. USD/JPY plunged from above 90.00 to below 89.00 "“ its lowest level since December 19. Heavy EUR/JPY selling, combined with growing conviction the ECB will cut rates aggressively in coming months saw EUR/USD drop from above 1.3400 to below 1.3300. The ECB is widely expected to cut the cash rate 50bps to 2.00% this week. But an independent advisory group is reportedly calling for the ECB's cash rate to hit 1.00% before the middle of 2008. GBP/USD also fell heavily, from above 1.5100 to below 1.4850, despite reports Chancellor Brown will announce a new GBP500m spending plan. There are also reports suggesting the UK government guarantees will be extended to cover securitised bonds issued by banks. Looking ahead, we continue to think concerns about a global recession, and convergence of global policy rates, will keep the USD (and JPY) firm over coming months (albeit the pace of appreciation is unlikely to be as rapid as that seen through the latter half of 2008). * Danica Hampton is BNZ's Currency Strategist. All of the research produced by the BNZ Markets team of economists is available here.

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