By Dan Bell
The market remains anxious as concerns in Europe and America remain unresolved. After spiking to a high of 0.8490 following yesterdays stronger Q2 inflation figures the NZD/USD has traded with a softer tone overnight but still opens over 0.8400.
The EU bank stress test results have not calmed or satisfied the market which has kept pressure on European government bond markets and bank share prices. Spanish 10-year government bond yields are making new highs near 6.30% and Italy is around the 6% level.
European officials and bankers remained divided over steps to keep the fiscal woes of heavily indebted EU nations from spreading. The euro zone's 17 national leaders will meet on Thursday in Brussels in an attempt to finalize a second round of financial aid for Greece worth 110 billion Euros.
The lack of progress in negotiating a U.S. fiscal package has already led all three major ratings agencies to warn of a credit rating downgrade in the event of a U.S. default. Most economists believe the US congress will finalize a deal before the 2nd Aug deadline but investors remain nervous. Such a move could send interest rates soaring and erode the U.S. dollar's reserve currency status.
Gold rose to a record $1,607.90 an ounce safe haven flows while global equity markets are weaker with the Dow Jones currently down 0.76%, while commodity prices have eased with the CRB Index down 0.72% led by oil prices which are down over 1%.
The NZD remains firm against most major cross rates and opens around 0.5970 EUR, 66.60 JPY, 0.5250 GBP and 0.7950 AUD.
No domestic data today but watch the RBA minutes at 1:30 pm NZT today. The AUD has been weaker over the last few days as markets price in a rate cut from the RBA this year.
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Dan Bell is the senior currency strategist at HiFX in Auckland. You can contact him here
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