- Overnight Interest Rate Update 02.09.10 Tue, 09 Feb 2010 05:24 GMT
- RICS Survey Hints UK House Prices May Decline as Supply Swells Tue, 09 Feb 2010 04:41 GMT
- UK Retail Sales Growth Worst in 15 Years in January, says BRC Tue, 09 Feb 2010 02:19 GMT
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- Feb, 09 Pound Rebounds As Risk Appetite Dictates Price Action
- Feb, 08 Euro Re-establishes Risk Correlation on Sovereign Credit Concerns
- Feb, 04 Yen Soars As Risk Trends Dominate Price Direction
- Feb, 02 Pound Losses Slowed As Risk Appetite Rises, BoE Could Set New Course
- Feb, 01 Euro Finds Limited Support From Risk Appetite, As Correlation Weakens
- Jan, 28 USD/JPY Weighed By Lower U.S. Interest Rate Expectations
- Jan, 29 Canadian Dollar Pressured As Crude Falls For Fourth Day
- Jan, 27 New Zealand Dollar Taking Cue From Yield Expectations with Rate Decision Looming
- Jan, 26 Pound Taking Its Cue From Equity Markets As BoE Likely To Remain On Hold
- Jan, 25 Euro Finds Support As Stocks Regain Footing
- Jan, 21 Canadian Dollar Dragged Lower by Falling Oil, Technical Levels Could Slow Losses
- Jan, 20 Pound Remains Supported Despite Prevailing Risk Aversion As Yield Expectations Grow
- Jan, 19 Euro Regains Footing On Positive Equity Markets Which Continue To Dictate Direction
- Jan, 15 USD/JPY Looks To U.S. Interest Rate Expectations For Direction
- Jan, 13 Australian Dollar’s Correlation With Commodities Weakens, As Interest Rates Come Into Focus
- Jan, 12 The Pound Rises on Strong Exports, Will Weak Equity Markets Reverse Gains?
- Jan, 11 Euro at Risk with ECB Rate Decision and Earnings Season Approaching.
- Jan, 07 Pound Looks to Risk Trends for Direction, As BoE Remains On Hold.
- Jan, 04 Euro Follows Stocks Higher, But Will Friday’s NFP Alter Relationship?
- Dec, 23 Canadian Dollar Finding Support on Firming Oil and Yield Expectations
The New Zealand dollar has started to give back some of its recent gains as waning risk appetite is weighing on the high yielder. Previously, the com-dollar sharply rose taking its cue from soaring equity markets which found support on the prospect of continued government stimulus.
NZD/USD
The New Zealand dollar has started to give back some of its recent gains as waning risk appetite is weighing on the high yielder. Previously, the com-dollar sharply rose taking its cue from soaring equity markets which found support on the prospect of continued government stimulus. Commodities which explain 63% of NZD/USD volatility were also lifted by the prospect of continued public spending. However, prices for raw materials were relatively subdued. The RJ/CRB index which is made up of a basket of 19 commodities has seen its current downtrend remain intact which may be a sign that kiwi weakness is ahead. Meanwhile, RBNZ interest rate expectations have taken a back seat to risk trends as it has become clear that the central bank isn’t following the RBA’s lead and embarking on a tightening policy in the near-term. The outlook for future yields has seen its influence fall to 8% from 21% a month ago, when a 2009 rate hike was thought to be a certainty.
RBNZ Interest Rate Expectations
Overnight index swaps are currently pricing in 212 bps worth of rate hikes over the next twelve months from the RBNZ, down from 235 on 10/27. The central bank is widely expected to be the next of the majors to begin tightening, but policy makers appear reluctant as they see a risk to the kiwi’s recent strength. Governor Bollard said in the biannual report on the financial system that “the rise in the New Zealand dollar over recent months could hinder continued improvement in the external balance.” Moreover, that the currency’s current valuation is “unsustainable”. The fear is that recent appreciation will hamper demand for exports threatening the scope of a recovery. Latter today the September retail sales report is expected to show that consumer demand rose by 0.4%. Domestic spending has helped fuel growth, but a lack of demand from abroad will force companies to cut workers making it unsustainable, adding to the argument for maintaining an accommodative policy.
FOMC Interest Rate Expectations
Several Fed officials spoke yesterday and the message that interest rates will remain on hold was a consistent them. San Francisco President Janet Yellen cautioned of a jobless recovery with Atlanta President Dennis Lockhart warning of a slow pace of growth going forward. The comments push yield expectations lower with Fed Funds Futures only showing a 8.3% chance of a rate hike in January. However, the Atlanta policy maker did state that there are scenarios in which tightening would need to begin with unemployment remaining at high levels. A rise in inflationary pressures would be such a scenario and traders should watch consumer and producer price reports for signs of increasing upside risks.
Commodities
Commodity prices have found support over the past few days but haven’t approached their 2009 highs as we have seen with equity markets. The RJ/CRB index is finding resistance at the declining trendline connecting the 10/21, 11/4 highs which may signal weakness ahead. Strong industrial production numbers from China provided early support, but concerns over global growth beyond government stimulus efforts have started to impact price action. The lack of supporting fundamentals leaves further gains at the hands of speculative interest which has increased on dollar weakness. Eventually supply and demand factors will prevails and based on the current outlook for growth most likely equal weakness ahead for commodities and the kiwi.
To discuss this report or be added to the email list contact John Rivera, Currency Analyst: jrivera@fxcm.com
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