Opinion: NZ$ solid as bumper Goldman result buoys Wall St, risk appetites

By Danica Hampton A busy last 24 hours of data and releases, something for everyone it seems and currency markets on the whole marginally firmer than yesterday's opening levels. Best performers are the commodity block and the NZD follows their lead to open this morning at the US 63.4 cent level, the NZD TWI at 60.0 Locally we had RBNZ's Bollard talk up the NZ economy's likelihood to revive faster than its trading partners, though there was caution in his message that this might simply encourage NZ household's to spend and borrow again and lose the opportunity to rebalance the economy. Greater weight though was given to the NAB's Australian Business surveys, which saw Australian Business Conditions climb to a 9 month high of -2 and Business Confidence print a positive outcome of +4, the first positive print since late '07. Overnight the NZD traded inside a 0.6315/0.6375 range, meeting some semi-official & sovereign names as better sellers at times, while momentum funds and traders tended to look to build "longs" in the hope that the USD is about to encounter a period of broad weakness in currency markets. A lot of attention overnight was always going to be on the performance of equity markets and earnings reports. Key earnings reports from commercial and banking names have "beat the street", adding to the appetite for risk fx and underpinning gains of about 1% in European equities. However, the US markets are struggling to maintain earlier gains as analysts delve into the detail of some releases and question reported outcomes. The RBNZ actually had a busy day with releases, publishing a research paper on the likely impacts of H1N1 Swine Flu' on the local economy. Their baseline result suggest the impact is likely to be low, with declines in output of less than 0.6 percent in the first year. Their research suggests a smaller impact than the recent experience of Hong Kong with SARS following input from the Ministry of Health and their modelling assumptions. Once again the local calendar is light, there is Westpac's Leading Index monthly update from Australia before a busy night of data offshore. As we start the new day, we would highlight immediate resistance at the 0.6375/0.6400 level "“ as evidenced last night and last week briefly. On the day support is first noted ahead of the 0.6300 level with deeper ongoing support evident at 0.6200/0.6225. Majors A busy night for analysts and traders, with data from both sides of the Atlantic to watch for and assess. UK inflation fell below the Bank of England's 2.0% target for the first time since September 2007 in June. The annual change in the consumer price index was 1.8%, down from 2.2% in May. RPI inflation pushed further into negative territory, reaching -1.6%, which implies that alongside rising unemployment, wage pressure will ease further in the year head. Eurozone data showed how weak the current momentum is in the single currency region. The German ZEW survey of economic sentiment unexpectedly fell in July, with the headline index easing from 44.8 to 39.5. Given that the current situation index broadly moved sideways, with only the smallest of increases (from -89.7 to -89.3), it seems that the analytical community are becoming more pessimistic about the ability of the German economy to generate a recovery in the near future. This is hardly surprising given the fact that domestic demand remains depressed and the strong value of the euro continues to weigh on the economy's ability to generate export-led growth. There is therefore little sign that the eurozone will see any recovery anytime soon and the ECB's reluctance to ease monetary policy any further ensures that any recovery will be pushed back into 2010. Earnings reports from Johnson & Johnson and Goldman Sachs are highlighted in the newswires, both beating analysts forecasts though not without raising some questions. It's again another busy 24 hours ahead of markets, with UK unemployment numbers, Inflation readings from Europe and from the US a full calendar of Inflation and Industrial readings. * Danica Hampton is BNZ's Currency Strategist. All of the research produced by the BNZ Capital team of economists is available here.