- How high is the NZD - really?
- Chart of interest - USD Index (DXY)
- NZD/GBP - are we justified up here?
- Chart of interest - AUD/EUR (the sleeper trade of 2013?)
- Chart of interest - Kiwi about to explode north?
- Japan Stocks and Mr Abe - an Opportunity?
- Hopeful for Gold and Silver
- The USD Super Cycle
- Chart of interest - perfect night for 'risk on' view
- USD/JPY and JPY crosses - is this the retirement trade?
- View archive...
Viewing entries tagged with 'NZD'
I detect the sense from my client base that the overall feeling is that the NZD complex is high or even ‘overvalued’. In a historical sense it may seem that way but let me assure you the current levels are far from an impediment to the trading of NZ Inc. Best put, not all NZD/USD rates at 0.8500 are equal.
Indeed today the RBNZ said “the opportunities for FX intervention are low”. That’s because point no 1 in the intervention checklist is “is the currency overvalued?” It’s not.
NZ Inc. is enjoying a terms of trade situation that is the best in 40 years. That saying that our export receipts minus our import costs are the best net situation that they’ve been in 4 decades. The prices we receive for our exports have risen faster than the exchange rate. Since the NZD was at 0.8800 in Aug 2011 our dairy price returns have increased by about 46% !
NZ Inc. is experiencing the fastest net inward flow of people in 10 years. +30,000 last year.
NZ Inc. has consumer and business confidence at 20 year highs. These surveys are highly correlated with future growth outcomes.
NZ Inc. is experiencing a huge positive shock from the Canterbury rebuild.
Overall monetary conditions are not as restrictive to business as they’ve been in the past. When the NZD/USD was at 0.82 in 2008 the cash rate was 8.25%.
The U.S. Federal Reserve has stated that they do not see the need to raise interest rates until at least mid-2015. Looking at the RBNZ’s forecasts today, NZ will have made six 0.25% rate rises by then! Currencies are still mainly determined by the change in interest rate differentials above all else.
The NZD is not ‘high’. Far from it. There is no fundamental ‘ceiling’ to cap this thing anytime soon.
BBY (NZ) Limited, a specialist advisor in Futures - FX - CFD - Options - Shares - Gold - Silver - Commodities
How strong is the USD ? Is the strength likely to last?
These two questions obviously go to the heart of matters at the moment and if the answer can be found then we can potentially unlock great profits.
After years of being shunned it appears that the U.S. is once again a preferred destination of investment. Since the start of the century, and accelerated by the onset of the GFC, investment funds flew out of the U.S. and headed for emerging markets. Such was the magnitude of the drive to exit ‘old’ for ‘emerging’ that a new term was coined. The rise of the BRIC’s (Brazil, Russia, India and China) was on everyone’s radar ……largely at the expense of the U.S.
However the U.S. has always been an early mover and we must admire them for the significant policy responses that were implemented in the wake of the GFC (compared to say the Japanese after their stock market collapse in 1989 which even until today was never adequately dealt with). These actions appear to now be bearing fruit just at a time when the BRIC’s, particularly China are slowing a touch.
Thus the massive flow of funds from old to new now looks to be slowing or even reversing.
Looking at the DXY chart this theme is strongly borne out.
The monthly chart of the USD Index is particularly revealing. Firstly there appears to be a long term ‘rounding bottom’ formation of some 10 years in the making. And significantly we are on the cusp of 2 bullish engulfing months within the last 4. To me that speaks volumes to the amount of USD buying presently going on. If history generally repeats, then the implications of a close to the month for the USD at these levels, implies multiple months of further USD gains.
The USD Index can be traded via the standard Futures contract or a CFD, both available on your BBY Online platforms. Or you may wish to simply spread USD risk through some of our old favourites in currency land, AUD, NZD, EUR, GBP and JPY. Indeed CHF could be added to this mix as a number of high profile analysts are calling for some serious weakness in CHF going forward, which makes Thursday evenings GDP release for Switzerland a must watch event (6.45pm NZT).
The NZD/GBP has been trading around multi –decadal highs of late. With the drought and the spectre of what I think will potentially be a more dovish than expected RBNZ tomorrow is the NZD really justified up here?
I’m a trend trader at heart and I don’t really like to pick tops but…
The market is chatting about the 8.1% annualised rise in NZ house prices (data released yesterday) and how upset the RBNZ will be about that. But the central bank is clearly working to the introduction of ‘macro prudential tools’ as they call it, to restrain house prices without using the ‘blunt’ instrument which is the official cash rate. You see, the RBNZ hate hitting housing with a rise in the cash rate because that usually comes with a higher currency which hurts the tradeable sector. They’re forever between the rock and the hard place so to speak.
The moderate knowledge I have about these new tools can quickly be summed up here in the NBR articlehttp://www.nbr.co.nz/article/downside-risk-use-macro-prudential-tools-warns-rbnz-bd-136767
Simply put, the introduction of these tools will to some degree limit the need for rate hikes surely?
This impending change and the drought make me very wary of NZD strength at the moment. On the other side of the equation the U.K economy has its own problems for sure but the fact that GBP/USD has fallen 16 big figures in 10 weeks suggest to me the NZD/USD could easily play catch up resulting in a lower cross. Indeed, currently I think the GBP/USD is actually due a bounce from last night’s price action.
Looking at the chart of the NZD/GBP cross yesterday was the beautifully, and emotively named ‘hanging man’……..you don’t need to think too hard about whether that’s a good sign or a bad sign huh? Downside follow through is beginning immediately after in today’s trade. I have high expectations for a move lower as a result
This is one of my dead set favourite trades.
Since the onset of the GFC the Australian dollar has appreciated against the EUR, almost doubling in value as the market sought refuge from the beleaguered EuroZone and finding haven in the high yield, proxy to China growth, AAA rated Australian dollar. What an incredible run.
However late last year things began to change with the Troika providing enough funds, and therefore time, for the EuroZone politicians to make the required fiscal changes i.e. labour market, pension reform etc. Meanwhile the RBA forecast an earlier peak in mining investment and resumed cutting rates.
It is my belief that the NZD and AUD currencies are vulnerable to their own success of the last few years (the cure for a high currency is a high currency – eventually it’ll hurt). I think too that Eurozone data will surprise to the topside in as much as it surely can’t get worse.
Technically the picture looks intriguing. We had the ‘head and shoulders’ break down below the neckline and then, as so often happens the retest. Now we look likely to resume the move that should head towards 0.7000
The 1 month range of 0.8300 to 0.8450 has bought the Bollinger Bands in to a ‘trend ready’ state. The bout of USD weakness (my primary, and long held expectation, on U.S. QE activities) has seen the NZD/USD respect the 9 month uptrend (yet again) after breaking over the nearly 2 year trend line resistance back in December.
1) Big picture
2) A closer look – Held the 9 month uptrend, Bollinger’s are trend ready.
I have profiled (ad nauseam) the potential for JPY weakness over the last 6 months of last year with good effect as the USD/JPY rose from 77.00 to 90.00 and the NZD/JPY from 58.00 to 75.00 in the same period.
What I haven’t done is document the opportunity for very large rises in Japanese stocks.
The real speed of the JPY move has come as the market came to understand that former PM Abe would once again hold power, pledging to learn from his previous mistakes as PM and essentially do the opposite (monetary policy wise) to his last tenure. Mr Abe says that in 2006 he mistakenly backed the BOJ when they raised interest rates. Following that decision the Nikkei stock index fell by half and the JPY appreciated by 40% against the USD.
Now Mr Abe is back at the helm and with his pledge to enforce a 2.0% inflation target on the BOJ, and the measures they’ll need to implement to achieve that will have to be nothing short of extraordinary. Indeed, one analyst I have come to respect, says Abe’s program will be like Bernanke’s but ‘on steroids’ !
Now to understand the potential for Japanese stocks we need to look back a bit in history. In 1989 the Nikkei Index was close to 40,000 and only this month the Nikkei was languishing below 10,000…………………incredible that the valuation of Japan’s corporate sector is currently worth ¼ of what it was more the 20 years ago. Now that’s a bear market huh? Here is a chart back to 1963 (great year that by the way!)
Now the other chart that screams that Japanese stocks are absurdly cheap is the Price to Book ratio that shows that in 2011 (I couldn’t find a more up to date chart but I understand that ratio hasn’t changed much) the index as a whole was trading BELOW is net asset backing at 0.9 !
So here’s the nib. Japan has a stock market that is super cheap (ridiculously so?) and now they have a government hell bent on cutting interest rates and printing money forcing investors back into stocks. That and the weakening JPY, which significantly helps the blue chip exporters, should see Japanese stocks much higher this year.
I’ll be spending the rest of this week looking for the best vehicles (financial instruments) to express this trade and will revert. For now I’ll buy a small amount of Nikkei and look to add a bigger amount on any dip.
Recently Gold and Silver have been bucking the trend of a weaker USD, failing to rise despite the moves up in NZD, AUD, EUR and Copper etc.
I find this action rather strange given the background of the FED’s supportive action but you never know if, say for example, the IMF are selling Gold to send bailout money somewhere or if a large gold miner has to put on a hedge due to their treasury policy.
So with the above situation I have been stalking a reason to resume being long Gold and Silver. The action overnight hints that the precious metals may be worth a buy here with stop loss orders below the overnight lows.
1) Gold daily – recall the big picture. Gold has been in a brilliant uptrend since 2001 and in August broke higher out of a multi-year consolidation triangle
A closer look at Gold – support apparent now at the overnight low
2) Silver has a number of similar technical attributes including stopping at the important Fibonacci number, 61.8% decline of the last rise. Also Silver probed below, but closed above, the 4 month major trend line support.
The USD Index has fallen from 121 in 2001 to currently sit at 80 (has been as low as 71 at the height of the GFC 2008).
Essentially the FED’s policies since the GFC have been aimed at devaluing their way to prosperity. Remember when they had a ‘strong dollar policy’ that was quoted by officials at every chance ? That’s right, we haven’t heard that one for a very long time!
I have long maintained that this super cycle won’t end until the rest of the world cries out “Hey, you can’t devalue your way to prosperity at the expense of the rest of us”.
That will likely require an accord of some sort like we’ve seen in the past, see ‘Louvre Accord’ 1987 – halting the decline of the USD http://en.wikipedia.org/wiki/Louvre_Accord and the ‘Plaza Accord’ also 1987 – http://en.wikipedia.org/wiki/Plaza_Accord .
Already we have heard increasingly strained complaints from the likes of the outgoing RBNZ Gov. Bollard, the RBA and the BoE. This I’d suspect is only the beginning and the howls of anguish are only likely to get louder before this super cycle is finished. Unfortunately for our little export orientated economy that probably means coping with a much higher NZD/USD, and worryingly a higher NZD/AUD which recently has served as a bit of a circuit breaker for us.
Looking at the USD Index, the price action since the onset of the GFC simply looks like a consolidation and today’s FED announcement has every chance of propelling the USD down and out of the multi-year triangle consolidation.
NZD/USD at 0.9500 anyone ?
This morning there are numerous charts suggesting we could be on the verge of some very healthy moves higher i.e. risk on.
At the very least the overnight moves gives some very clear parameters to trade against, particularly if you hold a (extremely) bullish view as I do. I always have to check myself when my sentiment is so strong, however I will not be ‘falling in love’ with any positions. My stop loss levels will be clearly defined and my risk taking appropriate for the size of my account. It’s not a crime to be wrong but it is to stay wrong!
Ok here we go.
1) Dow Jones Index - Opened 1% down, ended up 0.85%. Essentially a bullish engulfing day with huge rejection tail.
2) EUR/USD – Butting up against 18 month trend line resistance. Down again or explode up through it…..what’s your call?
3) EUR/USD – A closer look. Its abundantly clear that a MASSIVE battle is taking place between bulls and bears right now given the price action of the last two days. I like to view it in somewhat barbaric terms. A battle is on and to the victor….the spoils! For whichever camp prevails in this battle the rewards will be quite long lasting I think.
4) NZD/JPY – As suggested in yesterday’s piece ‘Part 2 – NZD/JPY – a pause?’ when moves are strong the 10/20 day ‘river’ is a great indicator and overnight it did a nice job (as did my short term model) so I suspect that NZD/JPY should now not go under 67.00
There are a myriad of charts that all look the same but obviously there’s no point reproducing them all here. So I’m very bullish and have clear parameters to trade against. It’s an exciting prospect for a trader.
The USD/JPY has attained the state that I refer to as ‘trending’. Price pushing up hard and fast against spaying Bollinger Bands . The ‘morning star’ rejection of lower levels that I documented on the 10th of November has been a wonderful indicator.
From observing this technical state in the past I’ve noted that ‘pullbacks against the trend can be quite sharp but they are usually brief by time’ (24/48 hours).
This pair, in my opinion has been incredibly depressed for a number of years, and it could really fly going forward. Why not 100+?
For a bit of perspective (and showing my age) this pair was at 250.00 when I started in FX and had been at 360.00 in the late 1960’s.
What about Gold (the store of value as central banks globally attempt to inflate their way out of trouble) versus the JPY? Check the 1 year consolidation break out!
And NZD/JPY ? The Christchurch rebuild will make NZ’s economics look unlike any other western economy and on the other side of the ledger Japan’s problems (which I’ve documented many times recently) undermines the JPY. 100 on this cross anyone?……………………….and you get paid to hold it!
A trade weighted type portfolio of each of these pairs may be vastly rewarding going forward.