By Mike Jones
On Friday the NZD sustained gains of the previous night, underpinned by real money and fix related demand at times and weathering well any potential storms created by European uncertainties or Chinese policy.
The NZD saw out the week to close near 0.7785, with the NZDAUD cross near 0.7890.
Once more we saw global growth sensitive currencies perform better as investor risk aversion dissipated.
Chinese authorities raised reserve requirements by 50bp, a move that didn’t surprise the market and is viewed as being one of a series of measures to curb inflationary pressures officials will introduce.
The fears about the fiscal health of Ireland tended to be put to one side by most, allayed by reports of a rescue package being arranged by the EU, IMF in talks with the Irish government.
The weekend press in Europe expects to see in the days ahead the confirmation of a package that would see Irish authorities shore up their banking sector, with EU guarantees and funding.
Ireland’s Minister of Finance, Lenihan, met with the Irish cabinet on Sunday to recommend the government formally apply for this EU support.
As Friday’s FX market consolidated ahead of the weekend stock indices and asset markets treaded water, the CRB index (a broad index of commodity prices) just shy of 300 and Wall Street eking out marginal gains.
This meant the S&P closed the week unchanged on the previous Friday at 1199.
Looking into the crystal ball on the economist’s desk it does appear a somewhat quiet week for NZ, but with a potential to still cause some surprise and interest.
Having posted clear annual gains through the middle of the year, we believe October’s short-term visitor arrivals, published today, will fall short of last year’s levels.
But the positive annual growth in NZ short-term departures is likely to remain, no doubt boosted by travel to India for the Commonwealth Games. As for the month’s net immigration we anticipate another moderately positive number.
The sting could come in Tuesday afternoon’s RBNZ quarterly survey of expectations.
Emerging signs of rising inflation and already elevated inflation expectations are among the reasons we favour the OCR heading higher through 2011, even if near-term activity indicators are a bit mixed.
NZ Inflation data
Any increase in the 2-year-ahead CPI inflation expectations in the RBNZ survey, from Q3’s read of 2.6%, will be most unwelcome.
Note also that Tuesday’s RBNZ survey will divulge respondents’ picks for a number of other key macro-economic variables, including quarterly GDP.
For today, further improvement in investor sentiment should underpin the NZD above the 0.7750 level in the short term with ongoing resistance initially pegged towards 0.7825.
Traders saw out the week with steady global risk appetite, underpinning FX as investors tended to shun “safe-haven” currencies like the USD, JPY and CHF into the end of the week. As we noted last week, any suggestions financial aid for Ireland is coming will give a boost to investors’ risk appetite.
The week opens with this still the case as we look to understand the result of Irish government meetings and the assistance of the EU & IMF.
'Daily necessities'
Friday saw the Chinese central bank (PBOC) order a 50 basis point increase in banks reserve ratios.
The move impacted across Asian equity markets on concerns the tightening will of course crimp economic growth.
The latest moves come after Premier Wen Jiabao earlier in the week had called for curbs on agricultural goods speculation and discussed the possibility of price caps on what were labelled “daily necessities”.
China’s intentions are clear; to conquer inflation and analysts anticipate further tightening of policy before the year end. Data releases are light at the start of the week, though with the pending Thanksgiving Holiday in the US there is a busier feel to Tuesday & Wednesday on the calendar.
Tonight we see Euro Zone Consumer Confidence & from the US the Chicago Fed’s National Activity Index.
Obviously though for most the attention will be on reporting from the Emerald Isle & any detail on the terms of an Irish rescue.
* Mike Jones is part of the BNZ research team.
All its research is available here.
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