Opinion: Kiwi falls as US banks warn about March results

By Danica Hampton After climbing to nearly 0.5800 on Friday afternoon, the NZD/USD slipped below 0.5700 through the offshore session. Profit taking was really the name of the game for NZD on Friday night. US equities weakened (after chief executives at JP Morgan Chase and Bank of America warned that results deteriorated in March), which helped support the USD and temper appetite for risk sensitive currencies like NZD. Comments from the German Finance Minister, who warned that fiscal irresponsibility in Europe could put the euro at risk, also added to the more risk averse sentiment. Corporate demand for USD (thought to be related to quarter end) has also been noted and this helped weigh on NZD/USD. However, steady demand out of Asia provided some support on dips below 0.5700. For the coming week, global events will likely be the key driver of the NZD. Market participants will be closely watching the outcome from the G20 meeting in London at the press conference on April 2. But there is also plenty of data out of Europe, the US and Japan (including Tankan report on Tuesday and US non-farm payrolls on Friday). None of this economic news is likely to inspire much confidence in the global outlook. As such, we suspect global recession fears will keep the USD underpinned this week. Particularly, if the G20 make reference to the USD retaining its status as the global reserve currency. Against a backdrop of a generally firmer USD and renewed global recession fears, we suspect NZD/USD will struggle to break above last week's 0.5800 high and think the downside is the greater risk this week. Initial support is seen ahead of 0.5670, but a deeper pull-back towards 0.5550 looks likely over the week ahead. The USD firmed against most of the major currencies on Friday night, as global equity markets weakened and fears about the global recession resurfaced. EUR/USD slipped from above 1.3600 to nearly 1.3250, GBP/USD fell from 1.4500 to below 1.4300 and USDJPY traded within 97.00-98.50 range. US stock markets retreated on Friday night following comments from Chief Executives at JP Morgan Chase and Bank of America, who warned that their earnings results deteriorated in March. Recall: the recent rebound in financial stocks stems from comments from a number of bank officials (including Bank of America and JP Morgan Chase) suggesting that earnings had started strongly in 2009. The S&P500 fell 2.0% on Friday, but still finished the week up 6.5%. The S&P500 is currently sitting about 20% above the lows seen on March 9. The coming week is packed full of event risk. Much attention has been given to the meeting of the G20 leaders in London (April 2). The G20 discussion points will likely include: government stimulus plans, increasing the resources given to the IMF, the use of quantitative easing and other unconventional policy measures and the role of the USD as the global reserve currency. Market participants are not expecting too much to come from this week's G20 as recent comments from European officials suggests they are still strongly resistant to the US and UK calls for a coordinated global stimulus plan. However, the USD should find some support if the G20 reiterates the USD is likely to retain its status as the world's reserve currency. Aside from the G20, there is also a slew of economic news due out of Europe, the US and Japan. In Europe, the European Commission manufacturing and services PMIs will likely confirm the bleak position for Q1 GDP. The ECB also meets this week and is widely expected to cut interest rates to 1.00%. Recent comments from ECB officials suggest reluctance to pursue quantitative easing, but if European growth continues to deteriorate they may be forced into unconventional policies. In the US, the manufacturing and services ISMs will likely confirm the economy is still contracting at a sharp pace and Friday's non-farm payrolls report should show rising unemployment. None of this economic news is likely to inspire much confidence in the global outlook and we suspect global recession fears will keep the USD underpinned this week. Particularly, if market participants feel that Eurozone officials are not being proactive enough about stimulating growth. * Danica Hampton is BNZ's Currency Strategist. All of the research produced by the BNZ Markets team of economists is available here.