Collinson FX Market Commentary- January 31, 2014 - Market up Kiwi down
by Collinson FX on 31 Jan 2014
Collinson FX market Commentary: January 31, 2014, 2013
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Start - 2014 Mahurangi Regatta - Classic Yachts January 25, 2014 © Richard Gladwell www.photosport.co.nz
Markets finally rebounded after nearly a week of large losses. The Fed's commitment to tapering is becoming more apparent and for the right reasons. The economy is recovering and Unemployment has forced Bernanke's hand. Yellen now assumes the throne and her reputation is dovish.
Despite this, tapering is now becoming entrenched, and this is solid support for the emasculated Dollar. The EUR plunged to 1.3550 and the highly supported GBP back to 1.6480. This is a US story, rather than a reflection of the insipid European market. Earlier losses were sustained, with Chinese Manufacturing data contracting, as expected. Chinese PMI for Manufacturing fell from 50.5 to 49.5, missing expectations, and adding to the emerging market recent prognosis. This has not assisted the recovery in the AUD, which dropped back to 0.8750, more a reflection of the USD than local developments.
The RBNZ has left rates unchanged, but continues to hint at rises, later in the year. The Housing market in Auckland has pressured the Central Bank to raise rates but the Dollar has been the inhibitor. Recent falls have opened the window to rises, but the anemic economic growth, prevents action. The KIWI will continue to be impacted by the Fed's tapering, with consequential weakness, and this was the case overnight. The KIWI dipped to 0.8120 and may have desirable losses throughout a year of a rising reserve currency.
Collinson FX market Commentary: January 30, 2014, 2013
Collinson and Co have correctly forecast that there would be no rise in the RBNZ interest rates, just announced. With the official rate remaining at 2.5%
Equities continued to take big hits ahead of Ben Bernanke's last FOMC. He is expected to continue tapering, to the tune of a $10 Billion reduction per month, of QE Infinity. The impact of the slowing on the massive monetary expansionism is being felt in the emerging markets, with capital flight, and falling equities. The Capital flight has been seen particularly in Turkey overnight.
The Turkish Lira has been tanking and an emergency meeting of the Central Bank overnight saw drastic action. They raised interest rates from 7.75% to 12%! This extreme reaction is a reflection of the situation evolving, best manifested in the curency collapse, and panic actions taken. This boosted equity markets across Asia and Europe and gave some support to non-Reserve currencies. All the good news from Equities faded fast, with US markets considering the action, desperation, and contemplated the Fed's moves as more important. The EUR dipped to 1.3660 and the GBP was steady around 1.6575, supported by further recovery in House Prices.
Expectations are high for the Fed to continue the exit strategy on Monetary Policy but the ascension of Yellen, a noted dove, may throw a spanner into the works. The AUD managed to break back towards 0.8800, but failed to maintain these levels as risk appetitie flags, drifting back to 0.8760. The KIWI held up well, trading 0.8275, ahead of the RBNZ rate decision today.
The RBNZ is likely to leave rates unchanged but may signal some tightening later in the year. The economy is steadily improving and the risk profile has done the job on the currency. This may enable the Governor to commence the battle against House prices through raising interest rates.
Collinson FX market Commentary: January 29, 2014, 2013
Ben Bernanke commences his final FOMC meeting, one that has been highlighted by Monetary Expansionism, on an unprecedented scale. The Fed's Balance Sheet has trebled under his watch, as a remedy to the GFC, and politically designed fiscal incompetence. Some credibility must be apportioned, with the blame, for his tapering of the monster that is...QE Infinity.
Consumer Confidence rallied to 80.7 from 77.5 which sparked a recovery rally in equities and pressured the USD lower. The EUR rose to 1.3650 and the GBP 1.6570 after an expected rise in UK growth.
The British GDP rose 2.8%, from 1.9%, signalling a long awaited recovery in the economy despite the drag from the single market. US Equities rebounded from heavy recent losses despite a flat S&P Case Shiller Home Price Index and a flagging Durable Goods Order report. It is likely pressure, to the downside, will resume if the Fed maintains the tapering process.
The AUD gained some ground, rising to just under 0.8800 overnight but has since fallen off to .8750, with appetite for risk on the rise. The NZD also recovered some lost ground, moving back to 0.8250, supported by ever improving economic domestic news.
Collinson FX market Commentary: January 28, 2014, 2013
Equity markets opened the week vulnerable, after last weeks losses, stemming from fears over the emerging markets and the impact of tapering.
Capital has been pouring out of emerging markets and heading for the perceived strength of the US, which is anticipated to climb in value, as the Fed's tapering program swings into action. Chinese growth has been under pressure, which has impacted commodity prices, accentuated by the rising in the reserve currency.
This has hit the AUD hard, testing lows below 0.8700, although some consolidation is underway, at these levels. The KIWI has been impacted, but not to the extent of the AUD, as Agricultural prices have been fairly resilient.
The NZD has traded around 0.8200, with Auckland closed for Anniversay celebrations and the Australia Day holiday closing markets for the day. US Equities were still in decline with global fears spreading to investors and sentiment was not assisted by New Home Sales crashing a further 7%.
Expectations are high for some GDP growth in the UK and bucked the trend, rising to 1.6575, despite a flailing EUR, trading around 1.3675. The equity correction was always coming, due to the nature of the bubble, and QE tapering appears to be the trigger.
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