NZ Intervention Still Unlikely
New bank lending in China increased by more than expected overnight, giving the Australian dollar (and risk appetite more generally) a temporary boost. The New Zealand dollar struggled however after Finance Minister English reportedly said that the government is using indirect pressure to try to weaken the kiwi. No elaboration was offered, but it was clear at least that FX intervention is not under consideration. English pointedly rejected suggestions from exporters that intervention should be used to lower NZDUSD to 0.60, and described any government attempt to engineer such a large depreciation as “irresponsible”. He did acknowledge the strong kiwi introduces a “level of discomfort” however. Meanwhile in Europe the Troika’s review of Greece’s bailout programme is still ongoing and our base case scenario sees the EU eventually bringing the Greek bailout programme back on track in time for the Eurogroup meeting on October 8. Elsewhere, the German Constitutional Court is likely to make a public announcement today on the legal petition by German lawmaker Gauweiler to block or postpone the court’s ESM ruling scheduled for Wednesday. It is, however, unlikely in our view that the court defers Wednesday’s ruling. Apart from this, investors will be watching out for the EC’s proposals for single banking supervision and the Dutch general election results on Wednesday. The FOMC decision on Thursday, followed by the respective Eurogroup and ECOFIN meetings on Friday and Saturday, should offer further guidance. Following the ECB’s announcement of the Outright Monetary Transactions (OMT) programme that reduced tail risks in the Eurozone – not to mention the incorporation of a QE announcement by the Fed this week from our US economics team after the weak payrolls data – we revised our short-term FX forecasts. Our 1m and 3m EURUSD forecasts have been raised to 1.30 (from 1.25) and 1.25 (from 1.20), respectively, but the 12m target remains 1.15.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank