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David Walton’s Untimely Death Shakes Cable

By , Quantitative Strategist  and Richard Lee
23 June 2006 12:10 GMT

 

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GBPUSD

 

Walton’s Untimely Death Shakes Cable

News of the sudden death of MPC official David Walton sent the Cable significantly lower against theU.S. dollar through the London session. As the lone dissenter in the Bank of England’s 7-1vote to keep current overnight lending rates unchanged, Walton represented the most hawkish voice among his peers in calling for a 25bp rate hike. With his sad departure, markets now speculate that the remaining members will be much slower to raise rates than some had previously hoped. Adding to such sentiment, this morning’s CBI Industrial Survey report failed to improve on May’s disappointing reading. Survey respondents said that total orders continued to decline on the month, with the exports figure dropping from neutral to -3 in June. The economic release highlights the uncertainty in the future of Bank of England monetary policy, as it comes just a week after CPI underlined increased inflation risks. Indeed, if important economic indicators were to show weakness in the face of rising prices, the central bank would be completely powerless in fighting stagflation. Though this is at worst a long ways off, traders will pay special attention to the coming week’s GDP and Money Supply data. Any surprises could see the Pound fall further off its yearly highs.

 

Rumorville

Standing sell orders will reportedly slow any advance past $1.8315, while bids at the $1.8210 short-term floor will likely keep Cable relatively stable in coming trading. Any further decline would likely see at least a momentary rally through profit-taking on short positions.

 

 

NZDUSD

 

Current Account Deficit Worst in 30 Years

The New Zealand 1Q Current Account Deficit ballooned to its worst showing in 30 years, sending the NZ Dollar into a nosedive against its U.S. namesake. Now representing 9 percent of GDP, the NZ$14.54 billion gap in net flows cast doubts on the small economy’s ability to pay off international debts. Indeed, touting the highest central interest rate of any country with a top S&P sovereignty rating, a large current account deficit poses a challenge to government agencies looking to settle foreign obligations. The bearish news not only fueled a sell-off in its currency, but it also led many to speculate that the small island country could lose its top S&P rating. It is perhaps too early to call for such a move,  but a downgrade would most likely spark a significant divestment in New Zealand bonds. This could only help the U.S. dollar, which has strengthened this past week as investors snubbed other currencies for the safety inherent to investing in the world’s largest economy. With New Zealand 1Q GDP growth data due at 22:45 GMT, Kiwi traders brace themselves for further volatility on the potential for further bearish news.  

 

Rumorville

The NZDUSD triggered stops below $.6093 before finding bids just under $.6080. The currency pair now hovers around $.6090 with rumors of bids at the $.6060 barrier.

 

 

AUDUSD

Aussie Falls With Kiwi on Weak Data

The Australian dollar fell in tandem with the Kiwi following the weak New Zealand Current Account data. The sympathetic drop was likewise exacerbated by falling interest rate differentials against other major currencies. Recent interest rate hikes by other major central banks has narrowed interest rate spreads on the Australian dollar currency pairs. Given its status as a preferred carry-trade beneficiary, any contraction in its rate advantage causes sell-offs in the currency. Thus the Australian dollar may have to depend on strength in world commodity prices in order to reverse its two-month skid. As the world’s second largest gold producer, Australia has seen significant currency depreciation on recent weakness in gold prices. Though the commodity’s price has recently rebounded, a slight drop on the day nudged the Aussie dollar to as low as AU$.7322. Looking forward, traders now await tonight’s New Zealand GDP figures. Otherwise, the Australian dollar will continue to be at the mercy of world commodity prices as the national economic calendar remains barren until next week’s housing data.

 

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23 June 2006 12:10 GMT