Perfect storm for greenback

Perfect storm for greenback

By Mike Jones

Yesterday’s July retail sales figures were never going to be strong. And they weren’t.

The 0.4%m/m dip in total retail sales even managed to disappoint the market’s very modest expectation of flat sales in the month.

Still, the near ½ cent plunge in the NZD/USD in the wake of the figures, from 0.7340 to around 0.7300, looked like an overreaction to us given the underlying retail sales trend remains positive, albeit only modestly so.

Overnight, the losses in the NZD were reversed, and then some.

In fact, the NZD/USD came within a whisker of making new 8-month highs. Broad-based USD weakness propelled most of the major currencies higher overnight, and the NZD/USD was simply dragged along for the ride.

US bond yields dived amid renewed speculation the US Federal Reserve will be forced to restart quantitative easing in an attempt to revive the US recovery.

Indeed, Goldman Sachs hit the wires suggesting a new asset purchase scheme (worth up to US$1trln) could be announced as early as November.

Adding to the USD’s woes, USD/JPY slumped to fresh 15-year lows after Japanese PM Kan managed to fend off a leadership challenge (meaning intervention to stem JPY strength is now seen as less likely).

Against the broadly weaker USD, EUR/USD was launched from 1.2850 to above 1.3000, AUD/USD climbed to 2-year highs of nearly 0.9450 and NZD/USD rose from sub-0.7300 to test stiff resistance around 0.7395.

Still, the NZD fell relative to most of the crosses, indicative of the extent to which the sliding USD was responsible for last night’s NZD gains. Looking ahead, we expect to see solid gains in today’s electronic card transactions data for August as consumers begin to bring forward spending ahead of the October 1 GST hike.

Also note Fonterra’s (now) fortnightly auction is scheduled for early Thursday morning (NZT).

Initial resistance for NZD/USD is still eyed towards July’s 0.7395 high, with support towards the overnight low of 0.7280.

Majors

Developments in financial markets presented something of a perfect storm for the USD overnight. Buoyant risk appetite, sliding US bond yields and strong gains in EUR and JPY combined to produce the biggest one day loss in the USD index since July. Most of the major currencies were propelled significantly higher as a result. The USD’s woes started with a dive in USD/JPY.

Japanese Prime Minister Kan won a leadership vote over challenger Ozawa yesterday. With Kan widely regarded as having a softer stance on JPY strength, markets’ knee-jerk response to the announcement saw USD/JPY slide to fresh 15-year lows below 83.00. Later in the night, tumbling US bond yields took a heavy toll on the USD. Despite relatively upbeat August US retail sales figures (0.4%m/m vs. 0.3% expected), 2-year Treasury yields slipped 4bps to 0.49% and 10-year yields plunged almost 10bps to 2.67%.

Speculation the Fed could kick off a second round of quantitative easing (QE) helped drag yields lower after the Wall Street Journal reported Goldman Sachs expect a US$1tn QE programme to be announced by the Fed as early as November.

Having tracked a 1.2830-1.2900 range for most of the night, the sliding USD launched the EUR/USD through the key 1.2920 resistance level. Stop-loss orders were triggered and the single-currency eventually settled around 1.3020. Sentiment towards the EUR was also helped by a successful Greek debt auction – the first in two months. In stark contrast to the US, markets in Australia and Switzerland have factored in slightly more tightening from their respective central banks over the past 24 hours, underpinning strong gains in AUD and CHF.

Following yesterday’s robust NAB business survey, Australian markets now price a one in four chance of an RBA rate hike in October.

This, combined with the broadly weaker USD, saw AUD/USD climb to 25-month highs above 0.9400 overnight. Similarly, speculation the Swiss National Bank could hike rates at their meeting on Thursday saw USD/CHF slide through parity for the first time since December 2009. Technically speaking, with the USD index breaking below its 200-day moving average, and the EUR/USD pushing through key resistance at 1.2920, there is scope for additional USD weakness in the short-term.

The next resistance level for the USD index kicks in around 80.50. Event risk will come from tonight’s Eurozone CPI figures for August, US industrial production figures and the September edition of the NY Empire manufacturing index.

* Mike Jones is part of the BNZ research team. 

All its research is available here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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40 Comments

Well...Mike...that just leaves one metaphor headline to beat "Perfect Storm"......for you....for free...for all your ground-breaking work....

"Look Igor..it Lives"....followed with maniacal laughter for effect.   

   Some Bankers who manipulate figures the other side of the world control the buying power of our dollar..Risk appetite is good..our dollar goes up..risk appetite poor our dollar goes down. What I dont get get is what is "risk appetite"..As the most basic thing in life is getting fed..the rest is bull...

   As New Zealand is a Cornucopia of food production, in a hungry world.With ever diminishing land recources..It is a country where if push comes to shove..it could close its borders to everything but luxuries, that we couldn't be stuffed producing ourselves.The fact is in reality, we dont need the rest of the world..The rest of the World needs us.

  The Universities produce world class everything.The Infra structure could do with tweaking and maintainence.This would mop up the jobless.

  The question is "Why do people want to leave in droves"..When we should be thanking our lucky stars that we citizens have the right to live in this great place.The answer to this question is something structural, it must be answered then remeded, because if it isnt, our lives will have been spent stagering around a paradox.

Don't be fooled by bankster speak.. "risk appetite" and all the other phrases are meaningless in a manipulated market, its just intended for the public so that they 'think' like the markets are still real.

Give that man a cigar.....bullseye...hole in one...

P.S. Matt did Walter give you a mailing address for donations re...

Viva the Revolution.

I think Bernard may have a box or something at reception if he hasn't been dipping into it for pool fees.

   Your right of course..They haven't been real for a very long time, only one thing is real..and that is..in a Civilised society... "Does the money supply, equal goods and services in circulation?" If it does then the rest is what we want it to be.

Anonentity......."our lives will have been spent stagering around a paradox."

That is just beautiful........an ugly truth exposed.

I was hoping registration would reduce the number of crackpot conspiracy believers commenting. I guess not.

To whom  do you refer...Chris...? always up for enlightenment .

Hasn't reduced the number of gullible sheeple who are incapable of critical thought either.

Too funny, again I am still amazed that there are people who seriosly believe that the equity, money and commodity markets are still free, open and not manipulated.

Could be time for some repudiation, that would be controversial ; )

Chris - today, the 15th of September 2010 is the start for political actions not for words going around a circle.

 

Tipping point

 

The world is on a tipping point. The risk of destroying civilization within the next 20 years is fast growing. It is clear to me that unsustainable business practices are increasingly happening. Dominated by greed and megalomania the worldwide traditional economic pattern is driving us for so called progress and growth with the only aspiration for money, consumption and higher standards of living.

As a consequence the world pollution on our environment, nature and us is unacceptable. This period of time has to come to an end. Although there isn’t enough prove “Climate change” is caused by humans, signs of nature hitting back already causes enormous damage on economies and societies worldwide.

 

The younger generation has to spend in the billions in order to clean up the mess in may sectors our, the BB generation has caused in the last 30 and upcoming years. The younger generation may also bear the costs for massive natural events, which are prohibitively expensive.

 

Sometimes I even think we are already in that pattern, spending billions in repair what we destroyed earlier - a vicious cycle. We do need a clear sustainable economic strategy in New Zealand, which is based on less imports, quality, more self- sufficiency and modesty.  

 

http://online.wsj.com/article/SB10001424052748704627704575204590586862162.html?mod=WSJ_hpp_MIDDLENexttoWhatsNewsFifth

 

 

http://www.interest.co.nz/ratesblog/index.php/2010/04/22/16-crafar-farms-put-up-for-sale-on-open-market-as-chinese-deal-stalls/#comment-73191

   Kunst..not twenty years...not even twenty months. The tipping point was reached when the Russians fueled the "Basakar" (might have spelt that wrong) Reactor on the 28th aug.last, in Iran. Believe me when I say, it's like God wrote a play and the Choreographer has just called in the dancing girls for the final act.

   The play is called "The big game".and its about Black gold. In the final act the two players lay their cards on the table for the last time..and now ,its winner take all.It started with Gasoline and will probably end with the horse and cart.

Please, don't get me started on world politics, respectively on political propaganda - some think they will be always the winners.

What we need now and here in New Zealand and in other western societies are peaceful, but revolutionary events in order to wake up especially our politicians demanding changes for a better and fairer NZ - before riots or worse is happening.

You are stating the obvious Kunst.

Walter...I offer the same response as I did to J.P. below. ......in the long run...

US dollar is not going to collapse. Its just being devalued. Only way it will collapse is when oil can be bought readily in other currencies. I don't see that happening.

I agree JP..............although I can't stand Charlton Heston....in the long run...it is always wise

...to back the man...with the biggest gun. 

Oh boy Oh Boy Oh Boy am I gonna stick it right up that smug poster a week or two back ...i bloody warned him I'd keep it.....Oh Boy Oh Boy OH BOY...whoooohoo

This is Gold baby...gold I tell ya....Gertraud I don't know where you are right now.... but this is

what I meant by chess with money......it's game on..Oh Boy Oh Boy Oh Boy..!

Hey Wally....hope you didn't jump in too quick buckaroo....it's about to get real ugly......Mike Jones....just cant wait to see what the Risk Munchers are gonna have for dinner....hmmmm lemme see now.... oh sweet baby Jesus this is big. 

take your meds, Christov...you're starting to peak!

no-one has mentioned the 60 BILLION dollar deal the americans have just done selling state of the art weaponry to the saudis this week!

now,that should get the iranians etc pumping to flashpoint...and the israelis !

and as for the greenback and gold..well, wally/wolly...i hope you've got some cos i'm well up. As you'd know, gold prices hit a fresh record high overnight, with both central banks and nervous investors seeking to insure themselves against future turbulence by taking refuge in the yellow metal.

 

As you'd know,the gold price has rallied to just under $US1275 an ounce, eclipsing its former record of $US1265.50 an ounce back in June, boosted by a report which predicted that central banks will be net buyers of bullion this year, for the first time in two decades.

Now here's the rub...London-based metals consultancy GFMS Ltd estimated that central banks would buy about 15 tonnes of bullion on a net basis this year, a situation last seen in 1988. The consulting group predicted that gold could climb close to $US1350 an ounce by the end of the year, due to worries about the anemic global recovery, and the high debt levels in developed countries.

Increasing central bank buying has changed the dynamics of the market, and boosted the yellow metal’s reputation as a reliable store of value. Some central banks have chosen to diversify their reserves because of fears that the weak outlook for the US, Japanese and European economies will translate into currency instability.

Countries such as Russia, China, India and Saudi Arabia have bolstered their gold reserves since the onset of the financial crisis in 2008.

GFMS pointed out that this is an important shift from the past decade when central banks – mainly in Europe – were responsible for selling an average of 442 tonnes of gold each year.

At the same time, private investors have been piling into gold, fearful that central banks in developed countries may have to resort to printing money to stimulate moribund economies and bail-out debt-laden governments.

go for gold, Wally

Yes that's it Donald....I've got to calm down.....get a grip...damn there's nothing in these drawers....wine yes I'll have an early glass...

whew ..! thanks for that.

I sense a fear-and-leathing afficionado?

The Smell is palpable my dear Powder...... had to run...had to move some things around...talk soon.

It's probably more that Hunter T's influences are the common ground......and I have problems thinking linearly ..........comedy tends to do that to you.....it's an insatiable appetite  for irony....

Hard to believe I know....now having now glimpsed it on U-tube....I will make a point of watching it.

funny I don't miss many of this ilk . 

I sense a fear-and-loathing afficionado?

careful of the mainbrace...and the pooter..wally lives under there cuddling his pills and gold!

you're right..it's nearly time for merlot the magician to come on in...

A big AMEN to that.....

i met hunter.s thompson once when i was on 2JJ in sydney in the 70's.....johnny depp fired his ashes out of a cannon when he died..just thought that may help you ,christ-ov!

He was a very astute political scribe, too. F&L on the Campaign Trail is pretty good.

Annnnnd just to close out this thread this from Peter W.......

 

Peter W | 26 Aug 10, 10:59am

0

Talking a big game there Christov (or should I say harry hindsight). Theres no way intervention will happen

 

As I said the first time Peter....everybody's a wise ass looking back....guess maybe you are too.............. now.

but have you considered this Christ-ov?

There is no correlation between growth swings in the developed and emerging blocs respectively, and therefore no sign of de-linkage in the betas. We continue to live in a highly globalized economy, and shocks to advanced economies have a clear impact on their emerging counterparts ?

 

Consider it considered as soon as I can digest it's matter Donald... as my forte is not economics I shall have to break it down as it were and look for motive  and positioning to see the cause and effect.

The human condition is my interest Donald...and it is what drives outcomes.

And so when I make a market punt it is more based on  positioning of interests than the economics thereof.

Happy day talk soon. 

Love It..the human condition is my specialty also so i guess the new abnormal is now the normal.

actually Christ-stove..the answer is there is no answer and that's the answer !

if you want some good rising gold stocks check IGR on the ASX...also ROL...both up over 150% in the last few months...always good to take a punt now and zen..

Ta....... for the heads up Donnymac....will take a squiz.

just bought some CQT on the ASX as gold heads to record highs...never buy the cake, buy the bakery!