News and views
As an interlude in the larger picture of gloom, Friday’s European and US sessions received a few crumbs of optimism: news of the expected appointment of highly regarded Timothy Geithner as US Treasury Secretary, which then led to a Dow recovery to its important 8000 level. A potential replacement for Fed chairman Bernanke was also mooted.
After Friday’s plunge into new territory, to a low of 0.5235, a correction took the NZD to around 0.53, The Dow’s strong close sees the NZD trading at just under the 0.54 resistance level. Interest rates fell by around 17 bp for both short and long maturities, an indication that traders have still not invested fully. Fonterra’s revised milk payout to 6.00, although widely expected, adds a sense of impending weakness in the corporate sector.
AUD’s low on Friday was 0.6157, and like the NZD, is trading at its 24 hour high of 0.6330, thanks to the Dow.
EUR’s equity-induced optimism took it from the 1.25 area to just under 1.26. JPY, conversely, weakened against the USD, from 94.45 to around 96 currently.'
Euroland advance PMIs very weak. The factory PMI fell from 41.1 to 36.2 and the services PMI slipped from 45.8 to 43.3 in Nov. These results point to a deepening recession across the continent. Other data included a 0.4% drop in French consumer spending in October.
Canadian CPI drops from 3.4% yr to 2.6% yr in Oct. Sharply lower than expected inflation due to falling transport costs (including fuel) more than offset the impact of the weaker C$ on import prices. The core rate was steady at 1.7% yr.
Outlook
Our weak outlook for the NZD remains, unless US equity markets follow through with Fridays recovery. The preferred scenario is the Dow continues its downward trend, which suggests 0.54 remains the ceiling on the day, with minor support at 0.5335, and a more important one at 0.50. Should the Dow recovery continue, NZD will break back above the key 0.54 level, and trade higher over the next few days.
