Weekly currencies outlook with Dan Bell

Double Shot Interview: Hi Fx Senior Dealer Dan Bell reviews the week's currencies moves and looks ahead to the FOMC meeting, the RBNZ decision and more

22nd Apr 11, 11:25am by Bernard Hickey

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.

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25 Comments

by Kunst | 22nd Apr 11, 11:43am 1303429380

Listen to experts - good morning Roger - often not recommended. The world is changing and fast. Considering the economic/ financial/ political situation - watch out for the Yen, Euro and US$ losing more ground.

http://www.interest.co.nz/opinion/53081/08000-nzdusd-level-unlikely-hold-very-long

by michael | 22nd Apr 11, 2:17pm 1303438676

I wonder how much more inflation can Corporate America aford to earn before they say ENOUGH. When you quote the SP500 in Oil or Gold instead of USD the chart looks quite diferent and the picture is not nice,. in fact we have achieved very little since March 2009.. Any form of QE3 would mean the total debasement of the USD. Until the FED comes clear intervening currencies is throwing money in the wind.

by steven | 22nd Apr 11, 4:00pm 1303444827

Oil and gold have gone up due to demand....so its not a good way IMHO to look at the share market through them...

regards

by michael | 23rd Apr 11, 7:23am 1303500238

Ok, then try quoting it in Euros...same thing. Any demand for USD will colapse the indices

by steven | 23rd Apr 11, 8:18am 1303503535

Picking a bench mark to suit what you want to see? I dont follow you....

NB Its very likely the EU will implode this year.....its like watching a dying man stagger along, we just dont know at which step he will face plant....

Inflation, US corps CEOs are earning a fortune....<2% core inflation doesnt bother them in the slightest....Have a look at the charts on it....if anything it looks like dis-inflation...and probable deflation....

So I wouldnt worry about corporate US, look to the ordainary ppl, worry and about all their guns....or at least the CEOs over there should.

regards

by michael | 23rd Apr 11, 12:34pm 1303518873

Steven. the EU is to big to fail. But it is important to pump small european stories that distract from the true story.

by steven | 23rd Apr 11, 6:44pm 1303541088

Michael, we simply do not agree....I think the EU will very probaly have a major crisis, whether it comes first from say greece, ireland or portugal and travels around the globe, or if the fuse it lit elsewhere say some of the US states defaulting I dont know.... EU to big to fail, depdns on what you mean, simply totally disband no I think not, worst case it goes back to its original members plus maybe the odd one or two that are equally solvent....what isnt known is if the Euro will survive the next two years....personally I dont believe so...I think one or more of the piigs will leave and the Euro will go bye bye.

Your true story is what?

regards

by michael | 24th Apr 11, 2:17am 1303568251

I can tell that we have oposite ideas. The euro is not going to disapear, China is agresively buying Euro debt and securing a market for their goods. The chinese will keep supporting the troubled european countries because it is cheaper than supporting the US debt. The true story is the US being run by the top depresion expert creating a text book masterpiece of a depresion. Only two possible outcomes : Galloping inflation or Steady deflation. No goldylocks this time. Pimco is more often right. than wrong.

by steven | 24th Apr 11, 9:45am 1303595130

The EURO might well continue as a coinage, just for a smaller number of EU countries, the latter strikes me as the most likely scenario after 1 or more of the piigs bail..........Chinese, I dont see how they can secure a market for their goods, all they are doing is collecting more debt....

Pimco is very interesting, I'd bail into cash as well, especially if its deflation. Interesting point Chris Martenson mentioned, the best investment in japan for the last 20 odd years has been cash.

Roaring inflation, no, its has to be all of an economy and when 70% of an economy is indebted ie the consumer, so wont be spending I can but see deflation.

regards

by Grant A | 23rd Apr 11, 11:42am 1303515738

Steve - yours is the classical mistake in looking at prices. Oil and gold haven't gone up in price, the paper money you're valuing them in has gone down. This is not some nutters way of looking at it as some suggest, but rather the way people who are actually recognising it as a truth, have responded to it and protrected themselves.

The only true way to look at say a share market is to value it against something that holds its value, such as gold, not paper that is being printed in massive volumes. People's mind sets have got to start changing quickly or they are going to get a nasty shock sooner rather than later. Currencies are sinking, inflation is making some investments look better than they are, try cashing in your shares and see what it buys now in living expenses compared with what it did.

by Snarlypuss | 23rd Apr 11, 12:06pm 1303517168

Gold? Holds its value? Try cashing in those ounces 'you' bought back in '80 or $800 and see what they buy you today, versus what they would have alternatively bought back then! Oh, and don't forget the non-interest bearing quality they have had for over that 30 years....that's if you didn't get scared out and sell them in the late 90's for $250, of course....

by michael | 24th Apr 11, 2:58am 1303570690

Yes there is an imbalance betwen assets and derivatives. For example the Chinese are not paying mkt prices for fisical copper to but they use their reserves as margin to get cheap credit for full mkt price. Clever.

by steven | 23rd Apr 11, 6:53pm 1303541586

No mistake....where was gold in 2008? when oil was $147? $1200 ish....now its $1500ish and $120. No, I dont agree......Ive said it before and I'll repeat, we are past peak oil so in effect with an inelastic demand curve and demand the price can but go way higher because the supply is flat....at some point between $100 and $150 and some time interval mix we will see the US go back into a severe recession and the world will go with it. No oil / energy dependent economy can do so, and the USA is amonsgt the worst of these for that.

Gold's price is obviously volitile, a few years back it was $500, now its three times the price...its simply not suitable a bench mark...

Ive sold my shares, waiting for the next depression/dip/recession....

Sit back we get to see who's right.......

regards

by Gummy Bear Hero | 23rd Apr 11, 7:59pm 1303545552

Yep , no doubt about it .......... The next depression/dip/recession ........... Only a matter of time , now ............ Waiting ........... A little more ........... Soon be there ..........

............ ummmmmm , can I leave the cave , your pit of woe & despair , just long enough to catch tonight's rugger ? ....... I'll be back for the Gloom & Doom vigil after the Crusaders wallop the Highlanders ..... ..... Promise ! ...

... You carry on gloomsterising without us ....... and we'll let you know how the world makes out ,.... if it survives , and all that .......

.............. Byeeeeeeeeeeeeeeeeeeeeeeeee !

by Grant A | 23rd Apr 11, 11:45am 1303515948

And core inflation at 2% ? US inflation over the past four monthly reports has been annualisig at 5-6%...it was always just a matter of time, and that time has now arrived. And what are all other currencies in the world valued against, the US Dollar - does that tell you were its leading us all ?

by steven | 23rd Apr 11, 7:16pm 1303543004

Yes, core inflation, around 1 to 2%

http://krugman.blogs.nytimes.com/2011/04/12/annals-of-well-duh-commodit…

There is a difference between core and CPI and CPI is volitile as shown above....so you can cherry pick and take the last four months by all means and claim "oh my god here comes hyper-inflation"....but to my ears its hollow....

Its simple, be a grown up and, take your own advice and sit back and watch what happens, ive set my course based on stag-flation at best but deflation and depression as most likely.....

And in terms of deficits,

http://krugman.blogs.nytimes.com/2011/03/29/friedrich-hayek-zombie/

"Hayek’s prediction that deficits would drive up interest rates despite high unemployment was, of course, totally wrong"

So wrong last time, but right this time? time will tell but to ignore real world happenings and experience v [eductated] guess work that was proved wrong last time seems uh silly....

"does that tell you were its leading us all" do tell.....I love crystal ball gazing its such fun!!!

Simple, we have never been in a situation where in an energy dependent economy cheap energy is no longer available....so in effect I suppose just about anything could happen including hyper-inflation....but I dont believe its the way to bet....go the opposite.

regards

by Grant A | 23rd Apr 11, 12:08pm 1303517338

Snarlypuss - yes choose any old timeframe that suits you. Its a long-term issue as it is with markets. The old adage that an ounce of gold brough a good suit in Roman times, did so in the 1920's, and does now, holds true if you go back and research it. Considering that almost all currem\ncies have devalued over 95% in the 1900 - 2000 period, remind me which one holds it value ?

by Snarlypuss | 23rd Apr 11, 12:37pm 1303519052

Those aren't 'just any old timeframe' dates, Grant! They're 'peak to peak'. Whats wrong with that? The last mania peaked in 1980 at about $800 ( for pretty much the same reasons as today? Middle East; petrol; inflation worries; US$ problems etc), and here we are, 31 long years later, at the next . A reasonable comparison, don't you think? I could have chosen $250, the low, to the next low...but I don't know where that will be...yet! And let me give you an observation. An ounce of gold didn't buy much of a suit in the late 90's!

by Grant A | 23rd Apr 11, 3:15pm 1303528541

Again Snarly you're picking shorter periods. In fact we're actually agreeing here, the peaks keep getting higher as paper devalues.....$800 in 1980's, above $1,500 in the 2010's, and when that eventually that corrects back somewhere after this run, probably $5,000 in the 2030-40's. So far Gold has nearly doubled in that 31 year period, as has inflation based upon a 3% odd average...but I suspect Gold has not finished during this cycle yet. With compounded investments returns, paper would have done somewhat better during that period to date (the next few years will tell that tale), but who would have held much Gold during that period of stable economics ?

Long-term is long-term, most us just aren't alive that long, or don't study history, to appreciate it. All I can say is that since 2000, the rising debt levels, and eventual resultant money printing, only became obvious to me in 2007 and that's when I bought my gold & silver - what was 10% of my net worth is now above 20%. Others were smarter, saw it earlier and bought in the early 2000's.

I don't personally care much where it goes from here, higher means more strife in the monetary world, and more pressure on the other 80% of my investments, lower means things have righted and that the 80% will likely feel safer - I will have exited percious metals at that point, hopefully with good timing, but maybe not. Eitherway its a hedge and a store of value during this crisis which regretfully I think still has many legs still to run yet. Those clinging solely to paper investments are taking a big risk unless you're convinced that Govt's have finished printing the stuff - I doubt we're going to see anything other than a small pause in that when the Fed finishes QE2 in June.

by Snarlypuss | 23rd Apr 11, 7:23pm 1303543432

Hi Grant! Frankly. You've hit the nail on the head. I'm not too concerned with what the Conquistadors did to the gold price in 1500 Europe ( It was bad , as you know. Massive immediate supply, and the gold price dropped though he floor. What happens if Lasseter's Reef turns up on Monday?). Just as I'm not too concerned with what it does right here. If you think it goes up...then buy it.. or down, then sell it. For me that's it's value. It's a medium to be traded. Nothing more, nothing less. Pretty much like mining shares in 1987 or Dot.com shares in 2000 or property in 2007.....As a protection against 'inflation'...I'll leave that to you.... But as a matter of interest; Why are you only 20% committed to gold if your really have true belief in your view? Or aren't you really that confident :) I'm 96% committed to my view, the rest being living necessities, like cars and furniture etc. Maybe you've answered your uncertainty with your 'hedge' strategy in your above post. But let's not forget what, was it Roosevelt, did in, was it 1931, when gold threatened 'paper'. History, Grant! Those who don't take notice of it, are doomed to repeat it! And if gold was 'it' I, and you, would have it in our pockets, today, to use at the dairy.....

by scarfie | 23rd Apr 11, 4:38pm 1303533515

Here are some interesting graphs that are pertinent to the discussion.

http://twitpic.com/4nfjl3

http://twitpic.com/4nfk02

http://twitpic.com/4nfky6

So is gold really in a bubble? Looks to me like it has to go up, or shares come down to correct the disparity.

by steven | 23rd Apr 11, 7:23pm 1303543405

Shares are pumped up by the cheap fed money....thats as far as Im concerned a bubble or dead cat bounce just waiting to happen...Gold, I think we have a tulip mania on our hands....every man and his dog is buying it, and in some cases IOUs for it (how crazy is that!) to me thats not a game to be in....

regards

by michael | 24th Apr 11, 2:42am 1303569749

That is what I mean, there is an imbalance, and it has to correct at some point. BTW the US CDS has been going up for some time now. I think that we are playing a huge Musical Chairs game. But nobody can tell when the music is going to stop so we keep going arround getting very complacent....the FED will buy bonds for ever.

by Bernard Hickey | 23rd Apr 11, 5:58pm 1303538295

This is a useful sceptic's preview of the FOMC meeting and Bernanke's news conference. HT Wollly over at Top 10

http://www.marketoracle.co.uk/Article27686.html

cheers

Bernard

by Grant A | 23rd Apr 11, 10:17pm 1303553820

Snarly - you answered it, its a hedge against what could happen (be it happening now), although I'm more concerned about the global monetary system rather than merely inflation. Why am I leaving it at just 20% currently, because nothing certain in life - 20% protects the rest of the investment, and that's all I'm looking for, not profit