Moodys puts the UK on credit watch negative; Japan re-starts printing

By Kymberley Martin

NZD

The NZD is a little lower this morning, in the backdrop of a slightly stronger USD. It found support above 0.8280 overnight, trading around 0.8300 currently.

A generally well-supported USD overnight, as risk appetite eased was the key driver of the NZD over the past 24-hours.

However, the NZD made gains on most crosses. The NZD/EUR stepped up from lows yesterday afternoon around 0.6300 to trade above 0.6330 currently. The EUR was weighed on overnight by further delays in the Greek bailout negotiations (see Majors).

The NZD also drifted up relative to the GBP last evening. Sentiment toward the GBP was not helped by the UK sovereign rating being placed on negative watch by rating agency Moody’s yesterday morning. The NZD/GBP has moved up to trade just under 0.5300. Little technical resistance is now seen until early August highs at 0.5390.

The NZD/AUD drifted up overnight from 0.7770 to 0.7790 currently. Today the key releases for the cross will be the AU Westpac consumer confidence survey, and the NZ retail sales data. We are expecting today’s Q4 retail volumes to register a 1.0% increase (following their 2.2% lift in Q3), a little ahead of the market’s expectation for 0.8%.

Also look out for the fortnightly Fonterra milk auction in the early hours of tomorrow morning.

Majors

The USD has been broadly stronger over the past 24-hours as risk appetite has moderated. The JPY was the weakest performer after the BoJ’s surprise policy easing.

Markets sentiment waned a little overnight, after slightly disappointing US retail sales data. In addition, today’s EU finance minister’s meeting was postponed after it became apparent “further technical work between Greece and the troika is needed”. The Greek negotiations drag on. Equity markets recorded modest negative returns in Europe, and the US S&P500 is currently down 0.50%. The VIX index (a proxy for risk aversion) has ticked up toward 20 from recent lows close to 17.

In this backdrop the USD index crept higher, benefiting from its “safe haven” status. It rose from overnight lows around 79.00 to 79.50 currently.

The EUR that had drifted higher early in the evening initially lost some of its lustre after a disappointing Eurozone industrial production number. This showed I.P declined 2.0%y/y in December. The ZEW survey for February that showed current conditions rise to 40.3 (30.5 expected) was not sufficient to offset this disappointment. In addition, the ZEW’s forward-looking, economic sentiment component, continues to languish at -8.1 (though better than the previous reading of -32.5). The EUR declined from an overnight high, close to 1.3220 to 1.3110 currently.

The Bank of Japan unexpectedly added ¥10t (US$128b) to its asset-purchase program. This takes its asset fund to ¥30t. Following in the footsteps of the US Federal Reserve it also took the step of announcing an official inflation target. This is set at 1% “for the time being”. The JPY weakened on the news of quantitative easing. The USD/JPY rose from 77.60 to around 78.40. This is the level seen in early November, immediately after BoJ intervention, to weaken the JPY.

This evening, we get European GDP releases along with UK employment data. The Bank of England also releases its inflation report. We get a window on the US manufacturing sector with the Empire Manufacturing and US industrial production data. The Fed will also release the minutes form its 24-25 January FOMC meeting.

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