Bernard Hickey talks with HiFX Senior Dealer Dan Bell about the week's currencies and markets action in their 'Never a Dull Moment' report, including the concerted central bank action this week to try to stop a Eurozone banking system meltdown.
"The fact that they had to act is a sign there are some concerning things in the global banking system," Bell said.
Bell said the major focus of the debate over the euro zone's future is whether the European Central Bank (ECB) would or could step in as the lender of last resort to support the market, and in particular print money to buy Southern European bonds.
"There are a lot of tensions between what France and Italy want, and what Germany wants. Germany is the kingpin and they are at this stage against the ECB effectively printing money," he said.
"Ultimately they (the ECB) are going to have to step in and be more active. There are discussions between Germany and the other EU nations about more fiscal integration and Germany will want to have more control over the fiscal situation."
Bell said this debate would generate political and social tensions in Europe.
The New Zealand dollar surged after the concerted central bank action on Wednesday night and rose 6.5% in a week against the US dollar to over 78 USc. The Kiwi also rose strongly against the Euro and pound.
Importers would find now a good time to cover their purchases, while more bad news out of Europe could see the NZ dollar fall towards 70 USc, making life better for exporters who waited, Bell said.
China eases policy
Meanwhile in China, which dominates the Australasian economic outlook, the People's Bank of China reduced the reserve requirements for its banks this week, allowing them to hold less capital for their lending and therefore encouraging them to lend more.
"Obviously they're concerned with a slowing economy up there and trying to give things a little bit more of a push along," he said, pointing to weaker than expected Chinese factory output figures published this week.
Reserve Bank decision
The Reserve Bank of New Zealand is due to release its December quarter monetary policy statement next Thursday at 9 am.
Governor Alan Bollard is expected to be downbeat about the outlook, but to leave the Official Cash Rate on hold, possibly for all of next year. See Alex Tarrant's preview here.
"Maybe he's more dovish than expected and maybe he does hint there is room for a potential rate cut, and that would definitely see the New Zealand dollar under pressure," Bell said.
Dan Bell is the Senior Dealer at HiFX, a UK-headquartered foreign exchange dealer with significant operations in Australia and New Zealand. It has a dealing room in Auckland. See more detail here.