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Viewing entries tagged with 'NZ'
AUD vulnerable?
All
Last week, when detailing my NZDAUD thoughts, I suggested that the AUD was vulnerable due to the market being ‘long’. I posited that the AUD had long been a beneficiary of incoming flows due to its AAA rating, relatively high interest rates and proximity to one of the few engines of global growth being China (read resources boom).
Thus this morning I was pleased to see that the official IMM positioning data confirmed my thoughts as per below
G.
BUZZ-IMM spec AUD longs 4th highest on record
Aug 26 8:20am
- IMM spec data helps explain EUR/AUD squeeze as AUD longs rose further
- AUD longs up 20,203 to 86,992, takes them to 4th highest ever in Aug 21 week
- Suggests there may be more room for squeeze, though trend may be tiring
- EUR shorts trimmed slightly to 123,932, GBP flips long for 1st time in 3 mths
- Net USD long vs G10 halved to USD 3.24 bln from 7.69 bln
- IMM spec data in charts: http://r.reuters.com/taf29s
NZD/EUR & AUD/EUR - The Draghi Put
All
The NZD and AUD have been displaying ‘topping’ signals against the EUR as suggested in my piece of Wed 25th (NZD and AUD – Now the weakest?). Whilst I got the direction of the NZD/USD and AUD/USD spectacularly wrong, the NZD/EUR and AUD/EUR are still displaying all the hallmarks of being exhausted on their upside moves that have occurred over the last 2 ½ months.
With Mario Draghi’s stunning “ECB will do whatever it takes to preserve the euro”, adding, “believe me, it will be enough” comments I’d suggest that the drive to diversify into NZD and AUD will not be there in the near term. Further the EUR currency, given its bleak outlook and low interest rates had been used heavily as a funding currency for the ‘carry trade’. Now surely with these comments this flow will be reversed. In other words we now have the ‘Draghi Put’ where you can buy EUR knowing that the ECB ‘has your back’!!!!
Now the USD pairs have been very difficult of late, think risk on/risk off every other day, so these look like a lovely place to be in right now.
AUD/EUR – Made a ‘reversal’ day Monday after significant uptrend. Should be able to see 0.8300 even if this period only turns out to be a consolidation of the recent up move.
AUDEUR – click here to view chart
NZD/EUR displays very similar traits.
Regards Graham
NZ Inflation - is this a big deal?
All
I find today’s release utterly fascinating and I am somewhat surprised that there isn’t more chatter about the possible implications of this very low reading.
The RBNZ have one main mandate in a contract with the government. And that is to keep inflation, on average, over time, between 1-3%. For the vast part of my career that has been trying to control rampant inflation by raising rates. However now we are at the bottom end of the spectrum which is why I am so interested.
You see, if inflation settles below an annualised 1.0% for more than say a couple of quarters (that the room the ‘on average, over time’ part gives) then the RBNZ, through their contract with government, MUST employ actions to create inflation!
The market is sitting here with muted reaction, happily assuming that this quarter or the next (Q3) will be the bottom of the inflation cycle and that the Canterbury rebuild will squeeze the spare capacity in the economy thus promoting inflation (back into the range).
Certainly the mantra of ‘lower for longer’ as far as the cash rate goes is a lock but could we see something far more dovish evolve this year?
G.
Bullish failure?
All
Last week I reluctantly suggested that equity markets and ‘risk’ could turn north in response to the Eurozone developments of the previous week. Those thoughts were made on balancing weak data against the possibility of central bank responses which I thought would bolster sentiment.
However, after a week where we saw China surprise and cut interest rates, the UK expand their quantitative easing program and the ECB cut interest rates, global equity markets have failed to take solace from the central bank moves and ended last week lower than they started. The very weak global manufacturing PMI’s and the tepid U.S jobs report certainly overshadowed the stimulus moves. That, I’d imagine, is not a good sign.
In the wake of last week a number of ‘risk on’ instruments are displaying potential ‘topping’ signals.
NZD/USD – Dennis Gartman often likes to return to a trade in the 50%-61.8% box of the previous move. The NZD/USD in this instance traced out a ‘shooting star’ reversal week right from the 61.8% bounce of the last fall. No joy from central bank actions + sharply falling commodities (our dairy prices fell nearly 6% last week) suggest downside is again back in vogue. The AUD/USD is almost identical.
NZDUSD – Click here to view chart
S&P500 – The daily chart of the ‘big board’ in the U.S. paints a similar picture. Whilst the index stays under Thursday’s high the technicals look bearish.
S&P500 – Click here to view chart
There are two obvious game changers lurking in the background. Any certainty that the FED will come riding over the hill with QE3 will change the dynamic as will a wide ranging agreement from European policy makers. Until then it appears that the doom scenario may again hold sway.
G.
Bullish Failure?
All
Last week I reluctantly suggested that equity markets and ‘risk’ could turn north in response to the Eurozone developments of the previous week. Those thoughts were made on balancing weak data against the possibility of central bank responses which I thought would bolster sentiment.
However, after a week where we saw China surprise and cut interest rates, the UK expand their quantitative easing program and the ECB cut interest rates, global equity markets have failed to take solace from the central bank moves and ended last week lower than they started. The very weak global manufacturing PMI’s and the tepid U.S jobs report certainly overshadowed the stimulus moves. That, I’d imagine, is not a good sign.
In the wake of last week a number of ‘risk on’ instruments are displaying potential ‘topping’ signals.
NZD/USD – Dennis Gartman often likes to return to a trade in the 50%-61.8% box of the previous move. The NZD/USD in this instance traced out a ‘shooting star’ reversal week right from the 61.8% bounce of the last fall. No joy from central bank actions + sharply falling commodities (our dairy prices fell nearly 6% last week) suggest downside is again back in vogue. The AUD/USD is almost identical.
NZDUSD – Click here to view chart
S&P500 – The daily chart of the ‘big board’ in the U.S. paints a similar picture. Whilst the index stays under Thursday’s high the technicals look bearish.
S&P500 – Click here to view chart
There are two obvious game changers lurking in the background. Any certainty that the FED will come riding over the hill with QE3 will change the dynamic as will a wide ranging agreement from European policy makers. Until then it appears that the doom scenario may again hold sway.
G.
The Return of the Reluctant Bull
All
As an avowed bear this doesn’t come easy, but as John Maynard Keynes was attributed as saying “When the facts change, I change my mind. What do you do, sir? Reluctantly I am now a bull on ‘risk’.
Yes, the EU Summit measures to date only appear to be addressing the symptoms and not the root causes. But when German Chancellor Merkel says on Wednesday “Europe will not have shared total liability for debt as long as I live” and then agrees to concede to a Euro wide bailout fund and the dropping of austerity requirements then I guess the facts have indeed changed. I believe you need a frightening event for policy makers to act in the required fashion and when Italy and Spain’s (both regarded as ‘too big to fail’) borrowing costs approached/went over the 7% bailout zone I think the EU policy makers had stared squarely into the abyss.
Indeed, over the rest of the year I’d expect more positive developments to come out of the Eurozone now.
Further, a major point in the bear case for me has been that the U.S. FED would not delve into their bag of tricks anytime soon as QE3 surely has to be a consideration of ‘last resort’. But last night’s huge fall in the ISM is potentially another game changer. One month’s data won’t be enough to move the FED but another months poor data and the they could be forced into action. One only has to understand ‘Helicopter Ben’s’ background to acknowledge the possibility of more stimulus.
Poster boys for the change story are the NZD/USD and the AUD/USD which are now displaying quite solid bull signals on the charts.
NZD/USD – The NZD/USD has surged out of the upward sloping 10/20 moving average band which were already trending up, as are the Bollingers and the MACD.
NZDUSD – Click here to view chart
Yours, the reluctant bull
G.
NZD/AUD - Strong NZ GDP should cement higher levels
All
Fundamentals for a higher NZD/AUD have been lining up very nicely of late.
NZ house prices up, Australian house prices down. Numerous Australian businesses are shifting operations to N.Z. The RBA have been cutting interest rates (1.25% off their cash rate since November) whilst the RBNZ gave guidance last week that their next move is likely to be a hike in Q2 2013. One can now argue this GDP result sets the scene for an earlier rise given anecdotes about Q2 are already strong (ANZ have a new indicator, their ‘Truckometer’. That measure jumped 3.3% in May, the largest in the series (brief) history. The Truckometer should be the earliest of indicators that business and the movement of goods is improving).
NZDAUD – Click here to view chart
Regards
G.
NZD/AUD - Further update
All
Further to my piece NZD/AUD – Time to buy again? (dd 25/05) it has been suggested that it is time to lift stop losses as part of prudent account risk management following on from the overnight low seen on the massive Australian GDP report. If Australian jobs today surprise on the upside, confirming yesterday’s news, then being long NZDAUD may not be warranted.
G.
Last week in equities
All
The sharp declines in global equity markets last week traced out ‘bearish engulfing weeks’ in a number of indices, strongly suggesting that further falls will be seen over coming weeks.
From my observations over the years, the ‘engulfing’ signals, be it bullish or bearish, are one of the more reliable indicators around.
In the case of last week, the markets were already in a multi-week downtrend when they tried to rally early in the week (breaking the run of lower highs – which should be a bull signal) only to collapse and finish on their lows (and making a new low for the trend). That is bearish price action and shows that the sellers are highly motivated.
This price action throws up many trading possibilities including shorting the index’s themselves via CFD’s or Futures contracts or selling the risk currencies like NZD and AUD (AUD the most vulnerable right now?).
The S&P500 – The ‘big board’ as they say.
S&P 500 – Click here to view chart
The Dow, the Nasdaq and the German Dax all made the same pattern.
Regards G.
NZD/AUD - Update
All
A couple of the local banks (WBC, ANZ) have today put out ‘buy’ recommendations out on NZD/AUD in line with my thoughts (NZD/AUD – Time to buy again? – dd 25 May). The ANZ report in particular has some excellent material explaining why the NZD should be higher. Get your hands on it if you can.
However, there is one noticeable development above all, that has caught my eye and screams that the NZD is undervalued against the AUD.
That is, the increasing number of Australian firms closing arms of their business in Australia in favour of increasing operations here in NZ. I heard of another example this morning on the radio but can’t for the life of me recall who it was. However here is an Australian article dd 18 April (a little old) that explores the reasons why Woolworths, Imperial Tobacco and Heinz are part of this trend.
http://www.smh.com.au/business/australian-jobs-on-the-move-to-nz-20120417-1x5jv.html
This trend is developing because the NZD/AUD is so low and the very fact that this is happening will, in due course, bring the cross rate back to higher levels (long term average is 0.8400). Indeed one could argue that if Australian business fully embraced this new trend then the cross would ultimately be 1:1.
Regards G.
