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ANZ NZ Morning Brief

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Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: Expect another quiet range bound day for NZD, with little data to drive markets in the next 24 hours.

RATES: With the London market closed overnight and little movement in Australian bond futures, local rates are expected to open unchanged.

REVIEW

CURRENCY: The NZD continues to find strong support at 0.8530. EUR had a small bounce in quiet trading but could suffer as EU Parliament election results confirm a shift to protectionist right.

GLOBAL MARKETS: With US and UK markets largely shut for the long weekend, there's not much to report from markets overnight. Equities elsewhere rose on the prospect of more policymaker support from the ECB.

The Euro Stoxx gained 1.2%, with more sizeable rises for Italian and Greek bourses. Japanese and Chinese equities were also supported by recent comments by the Chinese Premier that the government will take action to stabilise growth. There was a narrowing in peripheral Eurozone government bond spreads to German bunds, with sharp falls to Italian yields following the re-election of the current government in the European Parliamentary elections. Higher prices for industrials and gold supported a 0.2% rise in the CRB.

KEY THEMES AND VIEWS

THE ECB PUT. With the June ECB meeting quickly approaching, comments from recent meetings between central bank officials, researchers and other policymakers in Portugal suggest that the ECB are toying with unconventional measures to boost economic activity and alleviate risks from very low inflation. Draghi is reported to have shown support for measures from negative rates to liquidity injections and large-scale asset purchases. The ECB is reportedly looking at the asset backed securities (ABS) market to encourage banks to lend to smaller companies and households that are often shunned by risk-averse lenders. While this has the potential to boost economic activity, other participants at the conference have noted this is not without risk, with the prospect that such measures will backfire. Converting packages of loans to companies into an attractive and tradeable investment may not be feasible without some kind of government backing that could distort the market. An ABS-purchase plan could also lead the ECB into a conflict of interest by associating it too closely with one type of financial instrument. While the prospect of further central bank support is providing a lifeline to equity and the bond markets, the currency market is telling a different story. CFTC speculative positioning data for the week ending May 20 confirmed that EUR net positioning turned short for the first time since late July 2013. Since the ECB meeting on May 8, leveraged funds have unwound their net long EUR positions, putting downward pressure on EUR/USD. With positioning now short, the ECB needs to deliver at their June meeting or risk a short squeeze in the euro.

OTHER EVENTS AND QUOTES

- Draghi Comments: "What we need to be particularly watchful for at the moment is the potential for a negative spiral to take hold between low inflation, falling inflation expectations and credit, in particular in stressed countries."

NZD/USD: Range bound...

Expect another quiet range bound day with little domestic or global data of note. Expect initial support at 0.8530 to hold, with stronger support evident at 0.8510 and 0.8500.

Expected Range: 0.8525 - 0.8570

NZD/AUD: Range bound...

With no data scheduled on either side of the Tasman today, expect NZD/AUD to also remain range bound.

Expected Range: 0.9230 - 0.9290

NZD/EUR: EU election results have little impact... so far...

The shift to the far right in the EU parliamentary elections has had little impact so far. But expect the EUR to be capped as markets digest the ramifications of this result, helping to keep NZD/EUR supported.

Expected Range: 0.6250 - 0.6290

NZD/JPY: Following the fortunes of NZD/USD

NZD/JPY has tracked NZD/USD with very little going on in the USD/JPY cross. Expect this to continue today.

Expected Range: 86.90 - 87.30

NZD/GBP: Quiet following London holiday

Nothing going on in NZD/GBP as we follow NZD/USD here as well.

Expected Range: 0.5065 - 0.5090

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