RBNZ On Hold, Focus Turns To ECB And BoE

ECB meeting will be a main focus of today and it's expected to keep rates unchanged at 0.75%. Meanwhile, ECB would likely revise down their economic projections. Back in September, the ECB projected that the eurozone economy would contract -0.4% this year with modest 0.5% growth in 2013. S&P downgraded Greece's credit rating to selective default, down from CCC, as the bond buy-back program "constitutes the launch of what we consider to be a distressed debt restructuring."

It noted that the selective default designation "includes the completion of a distressed exchange offer, whereby one or more financial obligation is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par." Meanwhile, S&P also noted that it "will likely consider the selective default to be cured and raise the sovereign credit rating on Greece to the 'CCC' category" after the buy-back program is concluded around December 17.

The BoE will announce its rate decision today and is widely expected to keep rates unchanged at 0.50% and the asset purchase program maintained at GBP 375b. Yesterday, the Office for Budget Responsibility projected that the UK economy will contract -0.1% this year and grow 1.2% in 2013. That's a downward revision from prior projection of 0.8% in 2012 and 2.0% in 2013 made in March.

Growth is expected to accelerate to 2.7% in 2016. Also, Chancellor of the Exchequer Osborne said that UK would miss the debt-to-GDP target by 2015/16 and would need to extend austerity by one more year to 2018 to close the budget deficit. Debt-to-GDP ratio would indeed peak at 79.9% in 2015/16. He noted that while some urged UK to abandon the deficit plan, he warned that "would risk higher interest rates, more debt interest payments and a complete loss of Britain’s fiscal credibility."

RBNZ left the official cash rate unchanged at 2.5% as widely expected. In the accompanying statement, Governor Wheeler said that while there was some slowing in recent month, economic growth is expected to accelerate to 2.5-3.0% over the next two years. RBNZ noted that risk in eurozone has decreased and Chinese economic data were more positive. But "uncertainty around the US fiscal position is constraining US growth." Meanwhile, the high NZD is a "significant headwind, restricting export earnings and encouraging demand for imports."

Employment data from Australia showed unexpected 13.9k growth in November while unemployment rate dropped to 5.2%. But the positive data provided no special boost to Aussie. RBA deputy governor Lowe said that Aussie is "uncomfortably high." And, "interest rates are lower than they otherwise would be to offset some of the effects of an uncomfortably high exchange rate." Meanwhile, Lowe also emphasized that "the floating exchange-rate regime has served us very well," and, intervention would be a "very significant step to take and quite a departure from the set of arrangements that have served us so well for so long now."

Also to be released today are Swiss unemployment, CPI, UK trade balance, Eurozone GDP review, US jobless claims and Canadian building permits and Ivey PMI.