Collinson FX Market Commentary- Apr 27 - RBNZ to march to same tune

by Collinson FX on 27 Apr 2015 Collinson FX market Commentary: April 27 2015 - RBNZ to march to same tune

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Apr 27 - The chains on the NASDAQ appear to have been broken and investors are pouring in! The dot.com era highs have been bettered and reckless confidence abounds. Central bank monetary policy has been extremely accommodating globally and the liquidity must repair somewhere!?

Economic data has been weak, earnings have been OK but corporate revenue has been disappointing. US Markets have been hit by weak economic data, allowing the Fed to defer any thoughts of raising interest rates, thus curbing the Dollar rally. The GBP has surged to 1.5180, reflecting the relative economic advantage of non-membership of the EUR, supporting independent monetary policy. The EUR has moved up to 1.0850, as an expression of the flagging reserve, which has also manifested in commodity prices.

This has impacted the associated currencies and revived them, despite indications from both the RBA and RBNZ, that they will join the currency wars. The AUD has consolidated above 0.7800, with reasonable inflation data, confirming growth and allowing a recovery ahead of the next RBA meeting.

The RBNZ has heralded a reversal in monetary policy, from the tragically misguided temporal order, to a conformity with all major developed economies. This has hit the KIWI over the last few days, falling to 0.7600, despite the reserve weakness. The parity call, with major trading partner Australia, has once again be avoided but interest rate differentials will impact over time unless a surprise 1/2% cut is made this week!?

Collinson FX market Commentary: April 24 2015 - Earth to Wheeler?

Apr 24 - Equities continued to rise, lead by a resurgent Nasdaq, which bested 15 year old dot.com levels. Global economic data was weak and earnings have also missed, on the revenue front, putting further pressure on Monetary Policy to do the heavy lifting. Chinese flash PMI contracted further, falling from 49.6 to 49.2, followed by a fall in Manufacturing data in Europe. The conflicted data failed to dampen enthusiasm for equities as the liquidity must go somewhere!?

The EUR consolidated above 1.0800, while the GBP moved up to 1.5050. Chinese data stalled a rally in the commodity dependent AUD, which softened, but recovered to 0.7770 overnight. The KIWI went the opposite way, with markets considering the musings of a little known RBNZ Assistant Governor, McDermott. The official was evidently sent out to announce a reversal in the failed Monetary Policy of the Governor.

The currency wars have seen Global Monetary policies pushing interest rates to record lows, while RBNZ Wheeler, has been operating in an alternate universe... the Auckland housing market! The recovery has collapsed under his wrong-minded policy direction and this has blown the 'rock star economy' phenomena. Signals of a reversal in policy is long overdue and markets have listened. The KIWI plunged to below 0.7600, highlighted in a reversal in the AUD cross retrenchment. Too late??

Collinson FX market Commentary: April 22 2015 - Testing parity with AUD

Apr 22 - The equity rally stalled in the US after Asian and European markets soaked up the previous days moves. European markets ignored the ongoing Greek tragedy unfolding and the dip in ZEW confidence from Germany and the EU. Debt/GDP also crept up to 91.9, from 90.9, reflecting the underlying intrinsic economic crises over the single market.

The Dollar stalled and this was reflected in the EUR, which was flat on 1.0735, while the GBP traded 1.4925. New York Fed President Dudley, reiterated the economic recovery scenario, while cautioning that interest rate rises were data dependent. The RBA Governor confirmed interest rate cuts were likely on an overvalued currency, which drove the currency back to 0.7700, while markets are now talking a floor of 0.7000.

The NZD was impacted but not to the same extent, drifting back to 0.7650, while again testing AUD parity.

The RBNZ Governor has been wrong throughout his reign. He was raising rates to combat a housing bubble, blunting the economic recovery, but has been negligent in addressing the currency wars ongoing with all NZ trading partners. Wheeler needs to get with the program and fast before trade impacts the economy further.

Collinson FX market Commentary: April 21 2015 - NZ Inflation contracts
Apr 21 - The Chinese joined the currency war with monetary stimulus, lowering the Reserve Requirement Ratio (RRR), allowing an expansion of liquidity. This was a trigger for a big rebound in global equities and the US Dollar. The EUR dropped back to 1.0720, while the GBP slipped below 1.4900, the fight to the bottom is on! The Greece situation remains critical, with Greek PM Tsipras, ordering local Government finances back to the Central Bank.

This was a consolidation of funds to allow payment of Government bills and debt repayments to the IMF. This problem is far from over.

Commodity currencies surrendered some of last weeks huge gains, with the AUD retreating to 0.7710, while the KIWI slipped below 0.7650. NZ inflation contracted, with CPI coming in at minus 0.3% for the quarter, reflecting the parlous state of growth in the 'rock-star economy'! Economic data remains weak globally and Central Bank policies counter this with massive liquidity.

The manipulated currencies will thus trade in distorted markets and be subject to monetary policy. The Greek crises continues to undermine the single market.

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