CURRENCY: A waiting game for the NZD today as the notoriously volatile Q2 unemployment rate is released this morning. Expect support levels to be avoided today despite the fortunes of the EUR waning slightly.

RATES: Kiwi rates are expected to open a touch lower in yield in line with global moves, with more receiving interest overnight in London.

REVIEW

CURRENCY: As expected support levels were tested and broken yesterday. The recovery of the NZD from closer to 0.81USD as other buyers entered the market has not been a major one at this point.

GLOBAL MARKETS: The euro weakened against most counterparts as European economic data disappointed and ratings cuts raised concerns over the debt crisis. The Euro Stoxx dipped 0.3%, with the FTSE 100 up 0.1%, with a 7.1% rise in the Standard Chartered Plc share price on speculation it would become a takeover target. US equities reversed earlier losses, with the S&P500 up 0.1%. Bond yields fell in much of Europe, including Germany (1.42% for the 10-year maturity), France (2.09%), the UK (1.56%), Spain (6.77%) and Italy (5.85%), while US yields were broadly unchanged. Commodity prices were unchanged overall on the CRB measure, with higher prices for grains offset by falls for crude oil, copper and natural gas.

KEY THEMES AND VIEWS

GROWTH OUTLOOK "UNUSUALLY UNCERTAIN" ACCORDING TO BOE. As expected the Quarterly Inflation Report showed a trimming of the growth forecasts for the UK economy (to 2% in 2 years time versus 2.5% in May). Inflation is a "little more likely to be below" the goal for "much of the second half of the forecast period". The Report noted while one-time factors exaggerated the second-quarter contraction, the economy is likely to remain subdued in the near term. The greatest threat to the growth outlook "stems from the risk that an effective policy response is not implemented sufficiently promptly in the euro area", providing European politicians with a subtle reminder to get their act together. The Bank also rebuffed claims by the opposition Labour Party of a scaling back of the fiscal austerity measures, with Governor King reiterating his support for the current program, who noted that while faster than planned government spending cuts had contributed to a weaker-than-expected economic performance, "that means there's less consolidation to do in the future." Despite likelihood of a slow process of recovery as the economy rebalances, King noted that "many of the conditions necessary for a recovery are in place", with the MPC continuing to "do all it can to bring about that recovery." At present this does not include interest rate cuts, with the MPC looking at further QE if further stimulus is needed to meet the inflation goal.

OTHER EVENTS AND QUOTES

� Spain and Italy credit ratings cut by DBRS Inc, one of the four companies accepted by the ECB to rate the securities it takes as collateral. Spain was cut 2 steps to A (low), with Italy down one to A. Ireland was confirmed at A (low), fours steps above junk. According to DBRS, "the evolution of debt to GDP is the most important for the stability of these ratings".

NZD/USD: In check?

Most likely another volatile NZ unemployment release today will go unnoticed by the currency market as the NZD remains confined to the 0.81USD zone. This afternoon's China July CPI data and the Australian employment release may hold more sway.

Expected range: 0.8125 - 0.8185

NZD/AUD: Closed down?

Today's employment releases may well deliver further tests of support for this cross. Having failed to break through NZD selling interests on the topside it may be destined for a return to sub 0.77AUD levels.

Expected range: 0.7690 - 0.7740

NZD/EUR: Offside?

Key moving average levels should continue to play a part in the moves of this cross today. Waning support for the EUR may well help further tests of the 200 hour moving average and a spike back into 0.66EUR territory.

Expected range: 0.6580 - 0.6620

NZD/JPY: Scooped up?

A test of deeper support 63.50 ensured more favourable buying levels for investors was delivered. The subsequent bounce is unlikely to have much more room on the day with 64.20 resistance likely to cap things.

Expected range: 63.60 - 64.20

NZD/GBP: Fouled?

The BoE quarterly inflation report was hardly worth waiting for. Comments from BoE Governor King that an interest rate cut could be counterproductive managed to assist a minor GBP recovery and keep this cross close to 0.52.

Expected range: 0.5185 - 0.5225