CURRENCY: Expect the NZD to remain on the back foot today as the inadequate central bank deliveries overnight look to sink any potential optimism. Buyers may well lower their interests to achieve better results.

RATES: Will open lower today, with a parallel shift lower likely.

REVIEW

CURRENCY: Further anticipation in early European trading overnight saw the NZD attempt a topside break. This move was easily thwarted, quickly reversed, and reflected on within a brief window when the ECB announced.

GLOBAL MARKETS: All eyes were on the ECB and other data got ignored. Currencies had a wild night, with EUR at 1.24 at one stage, only to plummet below 1.2150 within 3 hours. The Kiwi followed suit, but in a more diluted fashion. Equity markets tumbled, as did bond yields in the core markets. Predictably, Italian and Spanish yields rose, with the latter back above 7%.

KEY THEMES AND VIEWS

ECB ROUNDS OUT THE DOUBLE. Yes indeed, just 20 hours after the Federal Reserve disappointed, there was more disappointment as ECB President Draghi failed to deliver on his pledge to "do whatever it takes". To be fair, he might have something tucked up his sleeve for later on, but that didn't matter - the market was looking for immediate action and it didn't get it. Instead, the ECB left rates unchanged, noting only that "within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, it may undertake outright open market operations" and "may consider undertaking further non-standard monetary policy measures according to what is required to repair monetary policy transmission". The latter comment is clearly a signal that the ECB sees rising bond yields as counterproductive to it achieving its mandate, but what disappointed was the word "may", which was quite different to last week's "whatever it takes" rhetoric. Importantly, he did say that "governments must stand ready to activate the EFSF/ESM" to calm bond markets, but then seemed to pour cold water on it by adding that such buying would be subject to "strict and effective conditionality". At the press conference later, Draghi also acknowledged that Bundesbank had "reservations about programs that buy bonds", and all in all, the event became something of a fizzer. Now that this much-hyped event has passed, we now find ourselves in familiar territory: standing on the horizon surveying the debt markets. And what do we see? We see ?8.32 trillion of euro area government debt, of which ?3.36 trillion is owed by the PIIGS. It is therefore crucial that the yield on this debt is held down somehow. But we don't even know exactly how that's going to be achieved, yet that is the first step in a very long journey to sustainability (which must include growth, austerity, fiscal union or extremely tight oversight). So quite why the market thought we were to ever get "deliverance" last night is beyond your humble author. This is a multi decade problem, and anyone who thinks there's a quick fix, and/or that genuine "risk" rallies can be sustained is dreaming. But what does it all mean for New Zealand? In our view, we should expect investors to try and put more distance between themselves and Europe, intensifying diversification flows into our bond market, propping up the NZD, and flattening our yield curve. In short, it looks like it is time to revert to these familiar thematics which have defined our investment strategy all year.

NZD/USD: Double delight?

The Australasian currency basket continued to shine overnight as a distinct lack of action from the ECB and BoE left participants wondering. Expect the fortunes of the NZD to be weighed upon by the moves of the EUR although demand around the 0.8050 if not moved should support the downside today.

Expected range: 0.8055 - 0.8105

NZD/AUD: Still trying?

A solid Australian June retail sales release yesterday dented this cross only briefly. Today further topside attempts should be seen but nothing that would strike fear into the hearts of local exporters yet.

Expected range: 0.7705 - 0.7755

NZD/EUR: Finish line?

Having reached the target of 0.6666 overnight on this cross a mild reversal should take place. The fortunes of the EUR are still, in the medium term, poor so any correction to this cross is likely to be a minor one.

Expected range: 0.6616 - 0.6666

NZD/JPY: Dipping lower?

The combination of JPY strength and NZD weakness should ensure this cross tests support under 63JPY to close out the week. Such a move will be largely dependent on the US July employment data due for release tonight.

Expected range: 62.95 - 63.55

NZD/GBP: Bailing out?

Further GBP weakness with no action by the BoE has ensured this cross remains elevated. It should not push much higher during today's trading.

Expected range: 0.5200 - 0.5225