Collinson FX Market Commentary- July 4, 2014 - AUD Overvalued
by Collinson FX on 5 Jul 2014
Collinson FX market Commentary: July 4, 2014
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- Day 5, 2014 Toyota Optimist Championships, Manly SC © Richard Gladwell www.photosport.co.nz
The DOW powered through the 17,000 mark on the back of a better than expected Non-Farm Payrolls report. The US economy added 288,000 and Unemployment fell to 6.1%, lending credence to the bulls, with their rose coloured glasses.
The equity bubble remains a mutation of the Feds monetary policies and employment participation is fogging the data while cost of living denies the inflationary pressures. The ECB left rates unchanged but Draghi did clarify the extra-ordinary measures announced last month. The expansion of loans to banks, of EUR$1Trillion, was not just a boost to Banks P&L but an attempt to increase credit in the wider economy?!
The EUR is now testing 1.3600 on the downside while the GBP holds 1.7150.
Some of the gloss came off the AUD after Retail Sales contracted 0.5% and the RBA Governor Stevens confirmed their opinion that the AUD/USD is overvalued and should be lower ??. The AUD traded 0.9350 while the KIWI was well supported around 0.8750.
Central Bank activity remains the main driver of equities, bonds and currencies although economic data does have an influence. US Markets will be closed for Independence Day, tonight, meaning an effectively early close to the week
Collinson FX market Commentary: July 3, 2014
Markets remained buoyant overnight, with equities testing record levels, after some very positive employment data. The ADP Jobs data, reported an increase in 281,000 private sector jobs, which reinforces recent numbers and beat expectations.
This is a good omen for the Non-Farm Payrolls, which is due out early due to the Independence Day holiday, Friday. Janet Yellen delivered a speech questioning the unknown effects of expansionary monetary policies. The question is not what happens but when and to what extent? Print more money and what happens? Factory Oders contracted by 0.5% and Weekly Mortgage Applications fell 0.2%. The ECB is expected to leave rates unchanged after last month injections into the Banks.
The single currency traded lower at 1.3650 but continues to diverge from the GBP which is heading north. The GBP rallied to 1.7150 boosted by an improving housing market. The AUD retreated to 0.9440 with a surprising jump in the trade deficit. The deficit jumped from minus A$780m to minus A$ 1,911m, giving pause to a trade lead recovery, impacted by a rising currency.
The KIWI remained strong, trading 0.8770, supported by extremely attractive interest rates, and a complicit Central Bank.
Collinson FX market Commentary: July 2, 2014
The DOW surged towards the record all-time high of 17,000 with little in the way of fundamentals to support the vastly overstretched bubble. Co-ordinated Central bank action (notable exception of Wheeler in Wonderland!) globally has caused the massive flow of liquidity into shares with little to attract in the bond world.
Chinese Manufacturing PMI inched north and boosted the commodity currencies. The RBA left interest unchanged and confirmed moderate growth required interest rate stability. Commentary on a rising AUD was not desired especially considering weaker commodity prices. The AUD broke back above 0.9500 confounding the Central Bank and hitting the trade sector. The KIWI continues to flourish, moving to 0.8775, cheered by the RBNZ, hitting the domestic and trade exposed economy hard.
European PMI dipped lower while employment remained steadfastly high. The disfuntional single currency turned south again, trading 1.3675, while the economy remains in intensive care. The GBP is now showing the benefits of remaining outside the catastrophe-zone, moving back to 1.7150. In the US, the Fed is the only reason equities move into dreamworld, with nothing on the economic fundamental front to support the rise.
The ISM Manufacturing contracted and employment growth is largely due to low participation. GDP is back in contraction and without developments, on the energy front, the US would be heading into the doldrums. Equity markets should be sending jitters through markets but the bulls are burning! Painful to be short but you would not want to be long!
Collinson FX market Commentary: July 1, 2014
Equity markets are bubbling along on record highs but appear nervous with Geo-Political issues tearing up the Middle East and threatening central Europe. European economies remain flat and certainly a threat, to any concerted global recovery, despite Central bank activity. The slow recovery in Europe has been highlighted by continued deficits adding to mountainous debt levels threatening the very nature of these states.
Debt is out of control and any rise in interest rates would destroy most economies with debt servicing alone. This applies to the USA, which is accumulating a European style debt, as Obama drives them into a European socialist style economy. Central Banks will ultimately lose the battle to inflation, as supply finally overwhelms demand, exploding Bonds prices will be confirmation. The Dollar is under assault from the Fed and is collapsing across the board!
Even the doomed EUR booked gains, to trade 1.3690, while the GBP surged to 1.7100. The AUD also managed to improve, with the falling reserve, rising to 0.9430. NZ Building Permits contracted 4.6% and Business Confidence plunged to 42.8 from 53.5.
The 'rock star economy' has hit the wall as collateral damage from RBNZ policy. Wheeler has embarked on an aggressive monetary policy to raise rates in an effort to combat inflationary pressures and fight the real estate bubble in Auckland. He has succeeded in slowing economic activity, by raising the cost of capital and boosting the KIWI, which has been a body blow to the all-important trade sector.
The NZD rallied to 0.8750 and looks set for further gains with interest rate differentials providing the sugar. All eyes remain on Central Bank activity globally and important Jobs data out of a shortened week in the US.
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