CURRENCY: Expect further strength and tests of the topside for the NZD as we head into month end equity fixing. Risk concerns remain mixed but underlying positive moves for the NZD should squeeze out further positions.

RATES: Kiwi rates are expected to open a touch higher in line with global developments.

REVIEW

CURRENCY: Underlying support continued for the NZD despite the approaching EU summit. While not able to break through the next technical level it remains elevated on the opening this morning.

GLOBAL MARKETS: Markets were generally quiet overnight, with thin trading conditions overall. There was the usual headline chasing ahead of the EU summit and mixed data releases. Risk was hit early as Spain's auction of three-month notes yielded 2.36%, up from 0.846% at the previous auction. Currencies felt the brunt of the move. Peripherals held in pretty well early, but then succumbed with Spain's 10 year bond yields up 24bps to 6.80% and Italy's back above its danger zone at 6.15% (+17bps). European equities finished slightly in the negative (Euro Stoxx -0.13%) helped by better housing data in the US later on. US equities were the better performing though with the Dow Jones and S&P 500 both up 0.5% at the time of writing. US 10 year treasury yields were also up 4bps to 1.64%. Crude oil remains around US$79/bl. Commodities as measured by the CRB index was up 0.45%. Grains lead the way as there is increasing speculation USDA corn yields will be revised back as dry conditions in many US states persists.

KEY THEMES AND VIEWS

GERMAN'S MAINTAIN HARD-LINE STANCE AHEAD OF EU SUMMIT: Germany and Merkel hit the headline's again overnight with little appetite for any largesse by other sovereigns. EU President Herman Van Rompuy released a 10-year road map, which centred on common banking supervision and deposit insurance and a "criteria-based and phased" move toward joint debt issuance. It also suggests that the EU could impose upper limits on annual budgets and debt levels of nations that use the euro, although such measures were supposed to be part of the original criteria for joining the euro in the first place. Germany said there was too much emphasis on debt sharing and too little on controlling national budgets in the proposal and Merkel was quoted as saying she will not have "shared total liability for debt as long as she lives" at a coalition meeting. Bundesbank President Jens Weidmann said the discussion about introducing a banking union in the euro area can't take place without it being part of the debate on fiscal union and urged politicians to more seriously discuss shared sovereignty. All-in-all brace for more headlines, discussion and probably little agreement from the EU summit.

OTHER EVENTS AND QUOTES

� The UK bankers and regulators charged with reviewing Libor in the wake of regulatory probes are resisting calls to overhaul the rate because structural changes risk invalidating trillions of dollars of contracts.

� US consumer confidence fell to 62, a five-month low, from a revised 64.4 in May.

NZD/USD: Moving forward?

While not able to break through the next technical level the NZD should find itself nudging up against it as we approach month end. A move past 0.7940 would require positive news on the European Summit front.

Expected range: 0.7880- 0.7940

NZD/AUD: Treading water?

Further lockstep moves will be discouraging some. Those with a longer term horizon can already visualise cash rates of the two countries on the same big figure helping their cause for a move back to 0.8000. Today nothing new is likely as this cross consolidates further.

Expected range: 0.7845 - 0.7895

NZD/EUR: Low bar?

A very low threshold for positive EU summit news could surprise many. If Germany sees value in maintaining the status quo then some ground will need to be given. Any cracks in their current stance should temper further topside moves on this cross.

Expected range: 0.6305 - 0.6355

NZD/JPY: Found a short-term base?

Yield demand thwarted any real test of support at 62.17 yesterday. Today moves may see a lift into the 63JPY zone but little further gains at this point.

Expected range: 62.50 - 63.10

NZD/GBP: Balancing act?

Further GBP strength should temper moves towards the topside on this cross as well. Expect difficulty getting above 0.5080 to continue today.

Expected range: 0.5040 - 0.5080