Collinson FX Market Commentary - July 9 - RBNZ's dance macabre

by Collinson FX on 12 Jul 2016 Collinson FX Market Commentary - July 9 - RBNZ's dance macabre

July 9-10 - Non Farm payroll returned to normal levels after the shock of the previous month. Some commentators used this a reason for the big rally in the stock markets to close the week! The real reason is QE! Massive liquidity allows 'free money' to look for a return...thus equities.

The Fed have telegraphed rate rises this year and failed to deliver. There is no economic recovery to warrant a return to normal monetary policy, thus corrupted markets result is massive inequities, namely shares and real estate. The coming week is relatively quiet, in terms of economic data releases, although US Retail Sales and CPI should confirm the dire situation.

Chinese data is also due for release but no surprises are expected, as usual! The NZD continued to surge, testing 0.7300, following the 'dance macabre' of the RBNZ. The AUD traded up to 0.7575, while the USD was steady, with the EUR 1.1050 and the GBP 1.2950. The Bank of Japan's inaction, with the JPY trading 100.50, will no doubt be rectified in the short term!

Collinson FX Market Commentary - July 8 - RBNZ inaction lifts KIWI closer to AUD
July 8 - US Equities gave up the previous days gains, in contrast to the rebound in European markets, while Oil crashed to $45/barrel. The Dollar found some support, with the EUR falling to 1.1050, while the GBP tested 1.2900. Once again Central Banks were driving sentiment, with the Bank of Japan resisting an immediate expansion of QE, despite a surge in the Yen to 100.70!

The RBNZ are trapped in a macabre dance, attempting to stimulate the economy by cutting rates on a par with most Central Bank, while fighting the housing bubble. The housing market is an inferno, pumped by low interest rates, rising demand and limited supply in the Auckland region. The only way to dampen this is to raise interest rates, but this will drive the currency north, while sedating demand.

The RBNZ promised further restrictions on housing while warning any further rate cuts 'could pose financial stability risk'!
The green light saw the KIWI rally against most currencies. The AUD retreated, falling to 0.7460, after S&P lowers the outlook from stable to negative. Central Banks continue to drive markets although the coming Non-Farm payrolls will be important.

Collinson FX Market Commentary - July 7 - Data jockeys do nothing
July 7 - US Equities stabilised after the release of the Fed minutes. This confirmed the Brexit was a reason for not raising rates at the last meeting. This is the most recent excuse in a long line. The Fed confirmed the need for pre-requisites in growth, employment and inflation to lift interest rates.

These are the major reasons why the Fed will not act as forecast. US Durable Goods Orders contracted 2.3%, while Factory Orders fell 1%, confirming a slide in consumer demand. ISM Non-Manufacturing jumped to 56.5, giving some good news to a flat economy, as markets await developments in Europe and employment numbers in the US. Political jockeying continued in the UK, as uncertainty drives the GBP below 1.2800, although the currency did recover to trade 1.2930.

The KIWI stuttered, trading down towards 0.7100, while the AUD consolidated above 0.7500. Australian markets steadied as the election result is pointing to a narrow majority Government to the Liberals. Brexit fallout and US Jobs will probably drive markets, although the Bank of Japan may surprise as the Yen test the big, big number of 100.00!

Collinson FX Market Commentary - July 6 - Canary in mine shaft again?
July 6 - Bond yields are nestling on record lows, which is a canary in the mine shaft, raising levels of concerns in equities. Share markets gave up ground, while uncertainty drove the Dollar and Yen higher, with macroeconomics taking centre stage.

The JPY traded 101.75, while the EUR slipped to 1.1070, with the GBP headlining with 30 year lows. The GBP is now testing 1.3000, so investors taking a punt on a recovery post-Brexit, hold on! Commodity currencies suffered the resurgent Dollar, with the RBA declining any actions, resulting in a steady currency until the declining reserve hit.

The AUD traded strongly in local trade, despite the political flux, holding 0.7500. The flight to safety of the Dollar impacted in overnight trade pushing the AUD back below 0.7450, while the KIWI slipped back to 0.7130. Global conditions remain weak and the Avalanche of data this week will confirm the state of play.

Collinson FX Market Commentary - July 5 - Elections but no Decisions
July 5 - The July 4th long weekend in the USA has ensured a very quiet start to the week despite the political situations evolving around the world. Upheaval, turmoil and uncertainty are becoming the new norm. Nigel Farage, UKip leader and major Brexit advocate, has now resigned....'mission accomplished'!

The battle continues for the leadership of the ruling Tory party, while Labours Corbyn clings bitterly to the leadership despite the parliamentary party rejection!

In Australia, limbo prevails, while the scrutineers take a well earned break?! A dozen decisive seats remain uncounted ensuring no result but the election counting was halted for two days. It will resume today but a result may take a few days. Furious negotiations will commence, as a hung parliament is in the wind, providing further uncertainty.

Australian equity markets were steady, despite threats from ratings agencies regarding the looming deficit/debt challenges, while the AUD rallied towards 0.7530. The KIWI complimented this move, testing 0.7200 on the upside, a product of a settling reserve. The GBP looked to regain 1.3300, while the EUR traded 1.1150, as markets stabilized, adjusting to the new norm!

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