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Collinson FX Market Commentary- June 14, 2014 - RBNZ pumps KIWI up

by Collinson FX on 14 Jun 2014
- Day 5, 2014 Toyota Optimist Championships, Manly SC © Richard Gladwell www.photosport.co.nz
Collinson FX market Commentary: June 14, 2014

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US Equity markets recovered some lost ground to close a week of losses. The turnaround was a reactive bounce, rather than any fundamental recovery. The University of Michigan Confidence survey, contracted from 81.9 to 81.2, which is further indication the economic recovery is stunted.

The situation in Iraq is starting to spread discomfort in Geo-Political circles and this is being reflected in oil prices. The radical Islamists are overwhelming the incumbent Sh'ite Government and the country is turning into a war zone. This is unsettling for the US and allies who fought so hard to rebuild post-Saddam Iraq. The EUR continued this inexorable decline and traded 1.3540, due to ECB expansionary monetary policies, gifting huge risk free profits to member banks in an effort to clandestinely bail them out of their parlous financial positions.

The GBP is heading in the opposite direction, moving to 1.6975, thanking God they declined the single currency. NZ PMI contracted from 54.40 to 52.7 as the economy suffers the collateral damage inflicted by the Reserve Bank. Interest rate differential pushed the KIWI ever higher and now approaches the 0.8700 mark. NZ Trade will be impacted as the currency hits the all important trade sector hard.

Current Account data and GDP growth will start to reflect the Wheeler Syndrome. The AUD traded around 0.9400, while market turmoil, may impact in the coming week. Geo-Political issues in the Middle East and Europe have potential to upset markets with some local economic data giving daily direction.

Collinson FX market Commentary: June 13, 2014

Sentiment has changed this week with equities hit hard again. Once again, there was little in the way of economic data release, but the bubble is testing all-time record highs. Retail Sales improved but not to the degree expected and Jobless Claims rose.

This did not impact greatly as bad news is often good news, perversely, as the bad news will be greeted with more Central Bank stimulus. The bubble is primed, but the fear now is inflation, which would require the Central Bankers to tighten their massively expansive monetary policies. The RBNZ did just that, as paranoid Governor Wheeler, raised rates once again! He lives in the land of Oz, because this is an attempt to combat the Auckland property bubble, rather than a sustained threat from inflation.

This would be acceptable policy but for the fact that all other Central Banks are easing, thus promoting attractive interest rate differentials, thus the carry trade. The currency is reacting as expected and heading towards 0.8700.

This will hit the trade exposed sectors, which drive the NZ economy and impact borrowing costs locally, hitting business.

The AUD has taken the positive from this and hit 0.9400 supported by strong commodity demand. The EUR continues to wain, trading 1.3550, while the GBP pushes ahead to 1.6840. Markets are nervous with record levels not justified by economic fundamentals.

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Collinson FX market Commentary: June 12, 2014

Equity markets tumbled with a sudden realisation that all is not well according to the World Bank! The review of global growth from 3.2% to 2.8% is another in a long line of downward moves. The World Bank and IMF continually espouse blue sky forecasts and then backtrack as reality hits home.

The ECB and the USA move post GFC corrupted Keynsian economic policies and run endless deficits to promote socialist polices rather than promote capitalism and self reliance. The result is endless mountains of debt which will destroy the economy.

At some stage the massive monetary expansionism will result in higher interest rates which will result in interest rates that will bankrupt economies. Interest rates will not rise for the right reasons, demand, but supply. At some stage the lure of low interest Fed and ECB debt will disappear and then bond rates will spiral and the GFC will seem a walk in the park. The EURO has been hit hard by the ECB and is self immolating. The single currency is trading 1.3525 and looks set to go lower. The Bank of England has changed course from the Fed and ECB and endeavours to battle back. The GBP recovers towards 1.6800 with a Governor who sees the light.

The RBNZ has no such luck with a leader who lives in Alice in Wonderland. He has raised rates in an attempt to reel in regional real estate bubbles ignoring the cost to the economy. He has raised the cost of capital and hit economic growth. The trade sector will be smashed as the NZD rises due to interest rate differentials and the resultant carry trade. RBNZ has raised rates again with .25% to 3.25%.

Update: RBNZ raised OCR by .25% to 3.25% as expected. RBNZ says high dollar is unsustainable. Kiwi up after announcement.


Collinson FX market Commentary: June 11, 2014

Markets were mixed overnight with slight swings between positives and negatives. The EUR continued to suffer the impact of the ECB's extra-ordinary negative deposit rates and crashed to 1.3540. The initial upward movement has been more than erased as the Central Bank continues massive monetary expansionism and wealth destruction.

The desired impact on trade will be almost immediate but the negative impacts will be more far reaching. UK Manufacturing and Industrial Production continued to recover, giving some support to the GBP, trading 1.6750. Italian GDP continued to contract, reflecting the struggles in the single market, and more especially the Med economies. US markets were steady, with the NFIB Small Business optimism reporting a tepid improvement, reflecting the marginal state of the domestic economy.

The AUD traded around 0.9350, despite a contraction in Job Advertisements and a deterioration in Business Conditions, reflecting some positive economic conditions emerging. The pressure from the RBNZ, to force the NZD lower, has begun to subside with the interest rate differentials encouraging the KIWI back towards 0.8500. Substantial economic data release or Central Bank activity will drive equities, currencies and Bonds for the remainder of this week.

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