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Collinson FX Market Commentary- May 7, 2014 - NZ goes alone with rates

by Collinson FX on 8 May 2014
Two 2014 Worlds Team members, Lewis Anderson (81) and Kerensa Jennings (astern) - Day 5, 2014 Toyota Optimist Championships, Manly SC © Richard Gladwell

Collinson FX market Commentary: May 7, 2014!Click_here to find out how to get CollinsonFX's free iPhone app

The market is an explosive cocktail mix with an equity bubble fueled by Central Bank largesse, war drums beating across Central Europe and China growth slowing. The US Economy is slowly improving with Unemployment falling although a collapse in growth must send tremors through the markets. The Fed continues to operate the tapering program but this still allows further stimulus through QE Infinity.

The Feds Balance sheet is destroying the Dollar, with the EUR 1.3930, despite a basket case economy! The UK is slightly better, still mired in deficit and debt, but has the consolation of its own currency. The GBP is heading back towards a high of 1.7000 although this must be considered in the context of the measured reserve currency! OECD Global Growth forecasts were reviewed lower with emerging markets under pressure.

Slowing growth has capped commodity demand and prices. The AUD has been impacted by this, but remains comparatively strong, moving back towards 0.9400. The 'rock star' economy remains ahead of the field, boosted by the RBNZ, on the move. The only developed nation that has determined to embark on a interest rate-raising strategy.

This is presumptuous, at best, and risks stunting growth and the recovery. The fear of a housing bubble has sparked action, which has overshadowed the impact on the currency. This disadvantages the trade sector which has been the driver of the economic recovery. The KIWI continues to 'fly' breaking 0.8750 with seemingly no ceiling!?

May is historically a volatile month and all the ingredients are there for some pretty drastic moves.

Collinson FX market Commentary: May 6, 2014
Flash from the Collinson Mobile App: RBA leave rates unchanged at 2.50% Australian dollar rises vs USD and NZD after the release

The week spluttered to a start with no real drive from markets in the US. Chinese Manufacturing PMI was released earlier in the Asian trading day and missed expectations, coming in lower than expected, at 48.1. It was only a slight miss, but remains a contraction (under 50), thus doing nothing to support commodity demand. The AUD was slightly weaker on the news, with local Building Approvals falling 3.5%, not helping.

All eyes, in Australia, have been on market speculation over the all-important first Liberal/National Budget which is expected to be a tough one. Today markets will be keenly awaiting the RBA rate decision and the associated commentary on the Australian economic situation. The AUD is steady at 0.9275 ahead of what is expected to be a hold. The KIWI continues to outperform, trading up to 0.8660, in the face of an improving economy and the attraction of rising interest rates.

The Ukraine is heating up, with the Ukrainians attempting to regain Eastern parts from Russian revolutionaries, by military means.This situation is in extreme flux and could erupt in to all out war plunging markets into turmoil. US Non-Manufacturing beat expectations, after important improvements in Employment, and the Fed's tapering confirms an stronger economic situation. There are many risks threatening nervous markets and remember the old adage regarding May.......!

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