Bernard Hickey talks with HiFX Senior Dealer Dan Bell about the week's currencies moves and looks at what might shift global currency markets in the week ahead.
In the last week the New Zealand dollar has risen to 80 USc as global risk appetites have returned and as the US dollar has weakened. It also followed strong demand for the government's NZ$1 billion bond tender on Thursday. See Gareth Vaughan's article on the bond tender.
New Zealand dollar strength follows comments from Reserve Bank Governor Alan Bollard last week about a structural improvement in prices for New Zealand's commodity exports. Bollard suggested he was comfortable with the New Zealand dollar's strength, in part because it helped contain inflationary pressures. See Bernard Hickey earlier article on Bollard's comments.
The Reserve Bank is expected to leave the Official Cash Rate at 2.5% when it releases its decision this coming Thursday at 9 am. Markets have priced in a rate hike by December and the main focus will be on the wording of the statement.
Meanwhile, the Australian dollar rose to post-float high of US$1.07 on Thursday as investors look for commodity-linked currencies that can benefit from fears about inflation and a weaker US dollar.
Markets will be watching the US Federal Reserve's FOMC (Federal Markets Open Committee) meeting and an unprecedented news conference to follow it on Wednesday evening. See more detail here from the US Federal Reserve.
The Federal Reserve is following the lead set by the Reserve Bank of New Zealand, which has been holding quarterly news conferences for years.
The focus will be on the economic outlook for the world's biggest economy and the prospects for the US Federal Reserve's second round of Quantitative Easing (QE), which is due to draw to a close by the end of June. Will it be replaced by a QE III lite or allowed to finish?
Markets will also be watching the debate in the US Congress over the US budget deficit and the US debt ceiling, which is due to be breached within weeks.
Over the Atlantic, the focus is on the European Sovereign Debt crisis where Portugal is in talks for a bailout and Greece is likely to have to restructure its debt.
In China, markets are watching attempts to slow the economy down by tightening monetary policy.
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.