Collinson FX Market Commentary - July 15 - RBNZ's surprise adjustment

by Collinson FX on 14 Jul 2016 Collinson FX Market Commentary - July 15 - RBNZ's surprise adjustment

July 15 - Politics have been overtaken by Central Bank commentary and speculation, driving currencies, while adding further stimulus to equity markets. The Bank of England left rates unchanged, but signaled further QE and rate cuts to come. The GBP rallied strongly but settled back to trade 1.3333. The Bank of Japan are considering negative interest rates, in addition to the vast QE, driving the Yen back to 105.40.

The RBNZ surprised many, with an adjustment between cycles, allowing commentary to drive the currency back below 0.7200. The RBNZ never seem to quite get it right in the Monetary Policy realm and this interruption is a correction of the last, ham-fisted, statement, Australian Unemployment rose from 5.7%, to 5.8%, but settling political events are calming markets. Monetary policy and commentary remains the major driver of markets, with QE driving equities to record highs, while demand controls commodities and impacts the associated currencies. Weak global economic conditions allow for massive QE and fiscal largesse.

Collinson FX Market Commentary - July 13 - Pound surges on confidence
July 13 - Geo-political issues calmed recently stormy waters, with the UK unifying behind a new Tory leader, while Japan and Australia form conservative majorities. The new Tory PM is popular in the ranks but she must prove her independence credentials after being on the wrong side of the Brexit issue.

The GBP surged, with new confidence, pushing to 1.3250. The Japanese PM, Abe, ordered further stimulus from the Bank of Japan and the Yen jumped to 104.75. The Australian Liberals met in Canberra and are awaiting a new cabinet selected by PM, Turnbull. The uncertainty is dissipating and markets are reacting accordingly. Equities surge to record levels, while Bond Yields fall to record lows, reflecting the enormous liquidity flooding global markets.

QE is the monetary response to stagnant growth, overwhelming deficit/debt and fiscal ineptitude. The Fed was never likely to act, due to anaemic economic conditions, but global QE prevents any action categorically. The slippage in the reserve was reflected in commodity prices, which pushed the associated currencies higher, ahead of important Chinese trade data. The AUD broke back above 0.7600, while the NZD is looking to breach 0.7300, reflecting risk appetite.

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Collinson FX Market Commentary - July 12 - Commodities and Oil drop
July 12 - No major economic data releases allowed markets to focus on the Geo-Political events consuming the markets over the weekend. The Japanese voted in favour of further 'Abenomics', while the Australian right also declared victory, after an antiquated and drawn out election process. This settled the status quo, reinforcing the ultra loose QE policies, while maintaining fiscal largesse.

Equity markets loved this and the S&P jumped to new record levels in the US. Currencies were a mix, with the Yen retreating to 102.70, while the GBP charged to 1.3000! Europe is digesting the new paradigm, with the realisation that the sky is not falling in, although the EU should realise the dire predicament they have been in for a long time. The growth forecasts in Europe have been reviewed lower, again, with further reductions likely.

Commodities drifted lower, with Oil falling below $45/barrel, pushing the associated currencies back. The AUD traded 0.7525, while the NZD attempts to hold 0.7200. Markets are calm but expect further Central Bank influence over a relatively quiet economic data release week. The Fed will release the Biege Book, which is likely to reveal the continued slow and steady recovery, thus quelling any requirement to raise interest rates!

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