Opinion: NZ$ still strong above 65 USc ahead of busy week

By Danica Hampton Northern hemisphere summer markets have served up a few re-runs, sessions seemingly replaying themselves over and over ad nauseam to close out the week. The tail end of the week certainly continued with risk appetite in good heart but unable to inspire a break to new levels or ranges. Major currencies are holding steady and for the NZD/USD that meant trading within a half cent range centred near the 0.6550 level. The NZD had a subdued session, for the most part reflecting the intraday nuances of equity and commodity indices. Currency markets continued to take heart from equity markets and earnings, with pieces of European and German data encouraging the bulls. The pace of contraction in European manufacturing slowed whilst German business confidence rose. Commodity currencies, lead by the Canadian Dollar, continued to attract investment while investor interest in developing nations, like Brazil, saw their currency trade to it's strongest level since September of last year. Locally our attention is now firmly on this week's OCR update from the RBNZ on Thursday. Everyone and their dog is expecting the cash rate to be held at 2.50%. As for the commentary, while the RBNZ is bound to acknowledge emerging rays of light, it will surely be balanced by talk of ongoing weak spots and risks. Also, watch for Bollard to express discomfort with the currency, which has continued to grind higher (in defiance of steady fall assumed in the June MPS). All of this suggests the RBNZ will probably reiterate its expectation of holding the OCR at or below current levels until well into 2010. Ahead of the OCR meeting, Wednesday afternoon's NBNZ business survey could shift either way this time, following its constant clawback over prior months. Wednesday morning's building consents seem set to reveal a clearer bounce in residential activity but, just as significantly, underlying weakness in non-residential activity. The week begins with Tuesday's June merchandise trade figures. Imports probably fell faster than exports, y/y, with the expected monthly surplus ($215m) plenty enough to signal further contraction in the current account deficit, while helping to limit the fall we estimate for Q2 GDP to just 0.2%. The NZ data week ends with Thursday's June credit aggregates. These will likely register further gentle recovery in mortgage lending but further sharp deceleration in credit to the agriculture/dairy sector. This week we will also monitor the maturing NZD Uridashi, as well as the continued large offering of toshin funds in Japan, though again these carry minuscule opportunity to invest in NZ. The focus remains on developing nations, the BRIC nations and to some extent Australian opportunities. On the day, the base for the Kiwi appears in the first instance at 0.6500/0.6525 and after posting fresh 2009 highs resistance continues to look evident on moves towards the 0.6625/0.6650 window. Equity markets tended to trade close to par to see out the week, as the S&P completed its best two week performance since March of this year. Fed Chairman Ben Bernanke suggested the Central Bank is winding down emergency measures that were established to end the financial crisis, which helped overcome some of the concern in earnings reports from the retail & IT sector. Looking at analysts' and journalists' writings at the moment, the $64 question is: "is the equity market rally overdone?" Or are there a lot of real money funds that need to yet come to market as investors fear of missing out on the recovery as they still hold allocations to low yield assets at overweight levels? This week there's still around one third of the S&P companies to release earnings reports, while the US Treasury is also auctioning a record US$115bio in debt. On the data front there is Consumer and GDP releases to gauge.