CURRENCY: The outlook for the NZD remains tentative today as selling pressures lower the topside cap in the NZD. Support levels should at some point be tested as buyers remain on the sidelines at current levels.

RATES: Kiwi rates are expected to open up in line with global moves.

REVIEW

CURRENCY: Attempts to the topside yesterday and overnight were easily thwarted as comments from PM Key ensured time above 0.82SUD was brief. The NZD remained on the back foot throughout the night's trading session.

GLOBAL MARKETS: Markets maintained the positive mood overnight, with the momentum of last week continuing. There was little in the way of direct drivers to point towards this. UK manufacturing and industrial production was in line with expectations (but still negative) and German factory orders slightly worse than expectations. Headline comments that probably helped were known dove Fed's Rosengren reiterating calls for QE3 and Luxembourg's PM Juncker saying a Greek exit from the euro would be 'manageable'. This saw equities higher with the Euro Stoxx up 1.7% on the day and US equities up 0.6-1.0%. Fixed income sold-off with US 10-year Treasury yields up 6bps to 1.63%. German and UK 10-year yields were 9bps and 10bps higher. However, Spanish 10-year yields were 13bps (to 6.78%), but Italian yields dropped with their economy entering a fourth straight quarter of contraction in June. The USD ended up marginally weaker against most, but little changed against the EUR. The CRB index increased by 0.8%. This was led by energy with crude oil up 1.8%.

KEY THEMES AND VIEWS

HIGH NZD PROVIDING LOTS TO PONDER: Comments overnight by PM John Key that the too-strong kiwi would make the NZ economy 'probably stop' reiterates what many exporters will be feeling - that it is difficult to make a decent margin at the moment. With the NZD pushing toward new highs against all its major crosses, except the AUD, and our terms of trade heading in the other direction, something needs to change. If it doesn't, NZ risks blowing out its current account deficit adding to the country's net external debt position. Across the Tasman, the RBA highlighted similar concerns yesterday noting that the AUD "has remained high, despite the observed decline in the terms of trade and the weaker global outlook". A high currency lowers the hurdle to the RBNZ and RBA cutting policy rates, should the global outlook deteriorate further. John Key reiterated a similar message noting "the currency gains ease pressure on the RBNZ and give it options". With the Fed on hold until at least 2014, and domestic inflation reaching its lowest level since 1999, it looks like the RBNZ will be on the sidelines for a while yet.

OTHER EVENTS AND QUOTES

� Italy's economy contracted for a fourth straight quarter in the three month's through June. GDP fell 0.7% in the second quarter of 2012 and is down 2.5% y/y.

� ECB Governing Council member from Estonia Ardo Hansson said the ECB will tie future purchases of troubled governments' securities to strict conditions to be set by the region's bailout funds, but these purchases could be "substantial" and "sustainable".

NZD/USD: Juggling act?

Expect support to be tested today as overnight PM Key comments weigh heavily. Initial support at 0.8160 had yet to be broken overnight but should be thoroughly tested. Buyers will demonstrate more patience today as supply increases marginally.

Expected range: 0.8130 - 0.8200

NZD/AUD: Too hard?

No moves by the RBA and NZD selling interests on the topside were enough to see this cross capitulate overnight. With a lower cap in place today expect support levels to also be tested on this cross.

Expected range: 0.7700 - 0.7750

NZD/EUR: Deep breathing required?

Expect support levels to be further tested as the EUR remains in neutral and the NZD gives up recent ground. Having easily dropped through the 200 hour moving average it should gravitate towards 0.6555 today.

Expected range: 0.6545 - 0.6595

NZD/JPY: Tough topside road?

Difficult getting above resistance at 64.50 overnight may well see the NZD ease under 64JPY today. Buyers may wish to demonstrate more patience as they may be rewarded with levels closer to 63.80 later today.

Expected range: 63.80 - 64.50

NZD/GBP: Still waiting?

As markets still wait for the BoE quarterly inflation report due tonight NZD fortunes have delivered a correction on this cross. While it remains above 0.52GBP it may slip under this level later today.

Expected range: 0.5195 - 0.5235