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NZD Capitulates

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The New Zealand Dollar plummeted further on news today that the RBNZ had been a heavy seller of the country’s currency in the previous month, comments by Prime Minister John Key supported this by stating that the ‘Goldilocks’ level for the NZD was around 65 US cents and indicated that the RBNZ could intervene to push the dollar lower. The NZD fell a further one and a half cents today against the US Dollar.

Markets are set for another volatile week, with the ECB’s Thursday Press Conference hotly anticipated for fresh details about the central bank’s ABS and covered bond purchase programs. At the September meeting Mario Draghi announced that the details (or modalities) of the ABS purchase programs would be announced following October’s meeting:

“The Eurosystem will purchase a broad portfolio of simple and transparent asset-backed securities (ABSs) with underlying assets consisting of claims against the euro area non-financial private sector under an ABS purchase programme (ABSPP). This reflects the role of the ABS market in facilitating new credit flows to the economy and follows the intensification of preparatory work on this matter, as decided by the Governing Council in June. In parallel, the Eurosystem will also purchase a broad portfolio of euro-denominated covered bonds issued by MFIs domiciled in the euro area under a new covered bond purchase programme (CBPP3). Interventions under these programmes will start in October 2014. The detailed modalities of these programmes will be announced after the Governing Council meeting of 2 October 2014. The newly decided measures, together with the targeted longer-term refinancing operations which will be conducted in two weeks, will have a sizeable impact on our balance sheet.”
This meeting will be crucial for near term direction in the Euro; the size and composition of the programs important for determining the impact on both the size of the ECB’s balance sheet as well as impact on the broader economy. Many are now expecting that the ECB will be forced to implement a full scale QE program before the end of the year.

Before the ECB can meet there will be further European data to shape expectations; German CPI is released today with expectations that inflation will remain weak at -0.1% month on month; on Tuesday Eurostat will release Euro wide Flash CPI with expectations that the measure will show continued weakness – economists are expecting an inflation rate of 0.3% year on year. While at some point the recent depreciation in the Euro should begin to swing these measures back towards inflation, it may take some time and the ECB will face continued calls for additional stimulus until this happens.

Other data will likely be of less importance this week, apart from Friday’s Non-Farm Payrolls figure out of the US. However, of some note early in the week will be tomorrows Japanese monthly numbers, with Average Cash Earnings, Retail Sales and Household Spending all watched to gauge both the success of Abenomics as well as the potential for the central bank to do more to stimulate sustainable inflation.

Also in Asia, Chinese HSBC Final Manufacturing PMI and Manufacturing PMI are both expected to signal expansion at 50.5 and 51.5 respectively, potentially bringing some respite for the Australian dollar after a 7 cent fall this month.

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