Opinion: Kiwi$ firm ahead of trade figures; Aussie governor's speech

By Mike Jones The NZD has been one of better performing currencies over the past 24 hours. Confirmation NZ’s economic recovery continues to build saw NZD/USD drift above 0.7050 last night. Yesterday’s Q4 GDP figures revealed output rose 0.8% in the fourth quarter, as expected. Not only was this the third consecutive quarter of expansion but annual growth of 0.4% was the first positive reading since Q2 2008. All up, the numbers provided confirmation the acceleration we’re expecting in NZ’s economic activity is continuing (we’re forecasting 3.0% growth for calendar 2010). As such, speculative and leveraged type players further squared ‘short’ NZD/AUD positions, pressuring NZD/AUD up to nearly 0.7770 and underpinning the NZD over the past 24 hours. Indeed, NZD/EUR reached a new 2-year high of nearly 0.5320 last night, while NZD/GBP jumped to 0.4760 ¬– the highest since June 1979. Still, currency markets were in a bit of a holding pattern for most of the night. Investors are waiting patiently on the sidelines to see if the EU summit currently underway comes up with a support package for Greece. Various headlines suggested Germany and France are already close to agreement on a combined EU/IMF rescue deal. Speculation of such, combined with an extension of the ECB’s loose collateral rules (which should help hold down Greek borrowing costs) stemmed further losses in EUR and helped stock markets post modest gains overnight. Reflecting the more positive sentiment, the NZD/USD drifted up to an overnight high of almost 0.7100. We’re looking for a trade surplus of around $700m from today’s February trade balance data, larger than the market expectation of around $430m. However, RBA Governor Steven’s noon speech is likely to have more of a bearing on the NZD, we suspect, to the extent more plumping of the Australian growth ‘miracle’ occurs. Also keep an eye on any headlines confirming a Greek rescue package from the EU summit. Such a result would likely prompt a knee-jerk jag higher in EUR and equities, with the NZD following suit. It was a night of consolidation across currency markets. The USD pared some of the previous day’s sharp increase, allowing modest gains in most of the major currencies. As the EU summit kicks off, markets are hopeful European leaders will come up with some form of support package for Greece. Tentative signs of agreement surfaced overnight. German Chancellor Merkel told the German parliament a rescue package made up of IMF and Eurozone aid should be offered to Greece. Meanwhile, Eurogroup chairman Juncker said "My impression was that we would find an agreement today". Still, markets are understandably wary of getting too optimistic on definitive action on Greece. As such, EUR/USD really only consolidated its losses, grinding up from sub-1.3300 to 1.3350. ECB President Jean-Claude Trichet announced the ECB would extend looser collateral rules into 2011, which should be supportive of Greek bonds in the event of further downgrades. Along with the slightly firmer EUR, solid gains in equity markets provided a bit of drag on the USD last night as demand for ‘safe-haven’ currencies was pared back. The FTSE rose 0.9%, the DAX put on 1.6% and the S&P500 is currently up around 0.5%. Comments from Fed Chairman Bernanke that the Fed has the tools to reverse the very high degree of monetary stimulus ensured US bond yields held onto (and even extended slightly) the previous day’s gains, helping USD/JPY push up to nearly 93.00. GBP found support from a surprising jump in UK retail sales. Retail sales ex-fuel rose a whopping 1.6% in February, the biggest jump since February 2008 and well above the 0.6% forecast. While the knee-jerk reaction saw GBP/USD surge to 1.4980, gains proved temporary reflecting downward revisions to back data. Not only are election concerns hanging over GBP, but our UK economists reckon UK GDP growth in Q1 will be at best weak, and possibly negative. As such, GBP/USD bounces may be limited to 1.5200 in the short-term. Looking ahead, we suspect confirmation of EU/IMF support for Greece at the EU summit may promote something of a relief bounce in EUR. However, we doubt we’ll see EUR/USD back above 1.3700 anytime soon, with interest rate differentials and a fairly dim Eurozone growth outlook now. *All of the research produced by the BNZ Capital team of economists is available here