Dan Bell's weekly currencies outlook

Double Shot Interview: HiFx Senior Dealer Dan Bell reviews the week's currency moves after the FOMC and RBNZ decision, and looks ahead to US jobs, NZ jobs figures

30th Apr 11, 10:08am 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.

The US Federal Reserve's monetary policy setting committee, the Federal Open Markets Committee (FOMC), met this week and decided to leave the Fed's version of the Official Cash Rate (the Fed Funds Rate) on hold at an "exceptionally low" 0 to 0.25% for an "extended period".

It also agreed to let the Fed's second round of Quantitative Easing (where it prints money to buy US government bonds) expire as planned at the end of June. See more here in Bernard Hickey's initial 90 seconds at 9 am after the announcement.

Federal Reserve Chairman Ben Bernanke also held the first ever Fed news conference after the FOMC issued its statement.

Bernanke seemed relaxed about a 'transitionary' rise in inflation and was more concerned that the central bank continued to stimulate the US economy, where jobs growth has been weak and unemployment remains at 9%.

"The market has taken that as a reason to buy back into risky assets. Interest rates at 0 to 0.25% are still seen as extremely accomodative," Bell said, adding that markets don't expect the Fed to start increasing the Fed Funds rate until the first quarter of 2012.

Lower US interest rates are favouring higher yielding currencies and those backed by central banks focused on price stability, such as the European Central Bank (ECB), the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ).

The Australian dollar rose to almost US$1.10 and some traders are targeting that mark, particularly ahead of the RBA's interest rates decision this coming Tuesday.

Relatively strong Australian inflation figures this week suggest the RBA may increase its 4.75% cash rate within the next few months, Bell said.

Meanwhile the RBNZ issued a dovish statement on Thursday in leaving the OCR on hold at 2.5%, which weakened the New Zealand dollar vs the Australian dollar. See Alex Tarrant's article on the RBNZ decision and statement.

The New Zealand dollar had recovered from its post-quake 20 year low of 72.40 Aussie cents towards 75.70 Aussie cents by last week. But the divergent outlooks for interest rates on both sides of the Tasman over recent days has seen the Kiwi dollar drop back to 73.50 Aussie cents.

Bell said he expected the NZ dollar to drop further towards that 20 year low of 72.40 and on further to 70 cents.

Bell also talked about the New Zealand dollar-British pound cross, which is up around 49 pence from its post-quake low of 44 pence.

Bell said the Bank of England may have to increase interest rates this year to fend off inflation, which could force the NZ dollar lower vs the pound in coming months.

Looking ahead, Bell said the market will be looking at US jobs figures this coming Friday night, with the jobless rate seen at 8.8% and jobs growth of around 200,000.

New Zealand jobs figures due on Thursday are expected to show first quarter unemployment around 6.6%, down from 6.8%.

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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18 Comments

by iconoclast | 30th Apr 11, 4:08pm 1304136489

"Bernanke relaxed about a 'transitionary' rise in inflation"

Yes. A tsunami wave is also transitory. Extremely transitory, with a devastating financial impact. Perhaps Benjamin Shalom should get in his helicopter and hop over to Japan and have a look at the destruction its transitory visit caused.

by steven | 30th Apr 11, 6:38pm 1304145495

No where near the same thing.

You miss the point of why the Fed looks at core inflation (and not CPI btw....)...its there to give a guidence in setting the OCR....do you really think uping the OCR just for a blip? is a good idea? that hurts mortgage holders, and retailers etc....and then it has to be dropped soon after....it makes it harder for businesses also etc....the best thing for everyone (except maybe the bond/stock traders) is a slow and steady change...will telegrphed in advance and predictable.

Not only that, the reason to raise the ocr is to remove some of the money supply because core/real inflation is raising its ugly head. If the money isnt getting out into the main street then there is no need to raise....not only that if main street is hurting due to rising costs in essentials a transitioanry rise hurts and achieves nothing it also risk deflation....job losses etc....

regards

by Wolly | 30th Apr 11, 7:06pm 1304147186

Steven....do please stop being so silly...prices for key commodities are being driven higher by the Bernanke printing which is flowing into the US Treasury market as the Fed planned..but in the process the us dollar is falling...so commodities rise.

It matters not whether you use the fake cpi figure, or the false employment reports or even the "core bullshit" from Bernanke....inflation is underway.

Now as far as the ocr is concerned (nz) It is being kept low to pork confidence, to fake some happy times, to help the govt win the election...that is what Bollard has been told to do. The RBNZ is NOT independent of govt. Keeping money cheap to enable banks to push their bubble mortgages will not bring an improvement in this economy. And running a policy that aims to create inflation...the debasement of the currency....is just thieving off savers.

Somewhere along the line you have to start asking yourself why growth is not happening...not here...not in the usa....nor the uk....nor the piigs...and not in aus or japan ..not in eastern europe nor in most of northern europe..you need to understand the debt mountain has cooked the system and throwing more cheap debt at the mountain only makes it larger....

by steven | 30th Apr 11, 8:43pm 1304153036

Wolly....whats underway? you feel it in your waters? Should we ring JK and Bollard and tell them to panic, Wolly had a movement?

"why growth is not happening" I already asked myself that years ago...and answered it, answer Peak oil....the finance ponzi scheme is set up and locked to grow at a rate that cant be matched anymore when we have cheap abundant oil let alone expensive hard to get oil....

"pork confidence" of course it is, and its almsot succeeding, otherwise we'd have deflation and depression by now.........2 years on and we are just about afloat but things are dropping off day by day....

Debt mountain, indeed take a look at 1929 for that outcome....hint, the two DDs what Pollies and debtors fear most....

deflation and depression...

Sit back and watch, we get to see which side of the arguemnt is right, shortly I suspect....before 2012 most likely....cant see it taking til 2013. Look on the bright side savers are maybe slightly better off on my side with deflation than your side, inflation.

regards

by Wolly | 1st May 11, 5:22am 1304184126

Oil will run out?...yeah so what...as the cost rises demand will fall...economies adapt and change...pollies tell different lies....Lignite to diesel conversion is certain...greenies will fill up before driving off to their next love in demo demanding a return to life circa AD 1400...who gives a shite.

The Goose arrested while out trying to stop deepsea prospecting failed to point out his boat is oil dependent...sheets warps sails fuel hull...you name it! ....sod the fool.

Then along came fusion power generation...what a bugger....the rent a mob greenies will have to paint new posters....Think about it this way steven...100 years ago fission nuclear power was not even a dream...1911...get the picture....100 years from now fusion may well be the norm. Gas guzzling trucks and shite heaps will be gone. The oil bloated middle eastern dustbowls will be dead. What have they got beyond oil...nothing but dust disease and sand.

High speed electric rail will dominate the world. The USA will be a basket case taking aid from Beijing. Your average 3br Kiwi box of crap house will be priced at 5 million dollars. BS artists will still fill Parliament and the media will still avoid publishing the truth.

by powerdownkiwi | 1st May 11, 10:40am 1304203252

Wolly - interesting nonsense, and given what has been posted here, you have no excuse for that.

Lignite to oil is a low ERoEI (do you know what that is yet?) product, and BAU relies on a higher. Indeed, it's operatiing on the higher, at full-noise. All steps like lignite-to-oil, are a retrograde step. You can see it as 'more expensive' per work done, or 'more volume needed' per work done. Comes to the same thing.

Protesting using current technology? Those who shoot the messenger, always fail the test: If they had the high argumentative ground, they'd proffer the argument. Should folk not protest, then. Better? Then we'd have what mechanism, exactly, to protect our habitat? It's only those folk who raise the awareness, and raised awareness in a society, is vastly to be preferred that chosen mass-ignorance.

Fusion and others, only do electricity. You then have the compounding problem of converting to something, using the downside of the gaussian of the existing. It doesn't happen without much grief, if you start that process AFTER the peak of your current gaussian. Fusion has been '20 years away' for 40 years, and I have discussed this with the local Physics Prof who did his thesis and early work in the area.

Then we have the little problem of exponential growth - in population, demand, impact. You refer to historical step-changes as if linear - but you traverse a period where human population has gone from 1 billion to 7, and where consumption per-head has increased severalfold.

High-speed rail? Just rail. thanks. Enjoy the journey ,.

The only thing you get right, is that the media will still not be purveying the truth. It's why some of us have to protest..... :)

by Wolly | 1st May 11, 11:44am 1304207084

You need to get up earlier in the morning PDK...who knows what's round the corner...that asteroid may well impact this century and that would solve the overpopulation problem...

So what if Lignite to oil uses heaps of Lignite...the users won't give a toss. You drive a vehicle and you rely on others to drive theirs...

I note you are quick to stuff your head in the sand over fusion...foolish act.

Hey you forgot to rubbish the blimps....oh yeah they cause problems with the Earths magnetic field and other stuff....

On your Bike PDK....oops no can't do that the tires are made mostly of oil compounds and the paint and jeez the energy used to make the rest of a bike.....nah stick to walking PDK....in bare feet or pure leather sandals...

by powerdownkiwi | 1st May 11, 5:54pm 1304229269

Blarney is the last resort of those out of their depth.

I don't advocate not using any carbon energy, I advocate using it sparingly, efficiently, while powering down to a sustainable level, a large part of which is getting 100% onto renewable energy.

I do my bit - and happily demonstrate what I do (for no return - it's done for societal reasons) and am happy to debate, learn, and do better.

You were quite reasonable, I thought, when I joined here. What happened?

by Roadhouse Blues | 30th Apr 11, 6:44pm 1304145861

Bernard, your website and client base was founded on the notion that you were predicting property prices to fall 30% 3 years ago when I started reading and contributing on a daily basis.

The above interview is with a currency spruker and I think completely misses the point of what your website used to represent as the international stories people are following are more along the lines of - why do people still have faith in the US$ as the worlds reserve currency? - When they print money with reckless regard where is the value of money? - As a store of value has fiat money lost all credibility. - What are the implications of printing money in regards to inflation and jobs and how will this effect NZ$ and me personally?

People are now tuning into people like Max and Stacey, and I just think that you may be missing an opportunity to lead the NZ debate.

http://www.youtube.com/watch?v=K-qBCVmjqHo&feature=player_embedded

by steven | 30th Apr 11, 7:03pm 1304146989

This is a limited viewpoint....you and a subset of readers think these thoughts....just why should this blog be dedicted to just your viewpoint? You can always start your own, I think GBH has for instance, Mark Hubbert (a?) has one somewhere.....

From my perspective, when you print money and that increases the money in circulation ie its spent chasing goods that leads to inflation and is the classic outcome....I totally agree with you...however when consumer's stop spending and when consumerism is 70% of GDP and in fact reverse their debt expansion but paying that back then there is less money chasing goods ie in circulation and less inflation and not more.....over the last 1 to 2 years in the US there has actually been dis-inflation when looking at core inflation and its getting dangerously close to overall deflation....and when that happens its nasty neg feedback spiral time.....at that point cash really is king (have a look at Japan for the last 20 years)....gold might hold its own, or might not....

There is also some suggestion that in fact the USD's value might recover....

http://theautomaticearth.blogspot.com/

I do like Max btw.

Maybe try this one (12mins in),

http://www.youtube.com/watch?v=cTdLgtzD9eU&feature=related

regards

by Roadhouse Blues | 30th Apr 11, 7:27pm 1304148421

Steven you missed the point - the above interview looks more like a paid infomercial than investigative journalism.

From the year to March the CPI (inflation) rose by 4.5% here in NZ, and our government borrows at least $250 million per week (old data - this number will now be higher). Yet us, the people, stand still and watch while our country is being sold under our feet for cents in the dollar when the money will need to be repaid as in Ireland and Greece and America.

I know Bernard has written great articles about these stories and I think that if he's going to interview people on a subject like currency then he could interview people from countries who have been sold down the river if we don't have the local experts.

Get somebody from Briton to explain why their pound is worth so little or somebody from America to discus where the US$ is heading.

by steven | 30th Apr 11, 8:15pm 1304151300

LOL.....N Foss an infomercial, did you see her try and sell you anything? are you that blinkered?...read her blog...on the other hand,

there is a saying, you can take a horse to water but you cannot make it drink....

CPI was CPI and not core....a one off boost ie half of CPI was the GST hike....it isnt ongoing so you dont raise the OCR to deal with it as it doesnt work into core inflation.

$300million a week....is the latest Ive seen.

"from america" read Foss above..........

Its simple, you are a grown up, place your bet and live with it....my bet is deflation...for that sell everything and go cash and no/little debt...

"our country is being sold under our feet for cents in the dollar" PPl have taken on debt for a property ponzi scheme that lasieez faire / free market allowed while "guru's" said private debt is good....it isnt...oops too late.......its their own fault....greed and stupidity.

So I ask you what is there to discuss in here when you have your fixed views already? want mutual support / confirmation so you feel happy with others of a similar mind? becasue it strikes me that is what you are asking for.....

regards

by Bernard Hickey | 2nd May 11, 3:02pm 1304305361

Roadhouse blues,

You should be careful about accusing someone of doing a paid infomercial.

This certainly was not that.

Dan is coming in every week to talk about currencies because I believe there's a great deal of interest in this area. There's been a lot happening and the weekend is a good time for a summary and look ahead.

We host currencies commentary from a lot of people, including Roger J. Kerr and the folks at BNZ.

It has been popular and that's the main criteria for us. If it's popular and interesting to our audience we'll run it.

cheers

Bernard

by Roadhouse Blues | 2nd May 11, 9:48pm 1304329698

Points taken Bernard.

Of course I do try to tune into your website daily and I think that you and your fellow writers and contributors do a great job of informed debate.

Personally when I read about currency issues I like the confrontational 'we're all going up in smoke attitude due to the US printing money' that some international blog sites with credible reputation portray.

I guess that I agree with their message - what is the value of paper money when a reserve bank can just print more of it?

This is not to say that there isn't room for Dan Bell and other more rational points of view - just that when I hear American "experts" say that the US$ should currently be rated BB instead of AAA, I have to wonder if there is a story.

Again, sorry for the comparison to an infomercial.

Cheers

Roadhouse Blues

by Bernard Hickey | 2nd May 11, 2:59pm 1304305198

Roadhouse blues,

Dan is no currency spruiker. He's an observer and dealer. He's not trying to sell anything. He's also not responsible for what the Fed and others do.

He's commenting on the news and opinions of those in the markets, along with what is happening in those markets.

There are a variety of views on this site.

Check out the widest variety here.

http://www.interest.co.nz/category/topic/top-10-10

cheers

Bernard

by Roadhouse Blues | 30th Apr 11, 8:47pm 1304153232

Again Steven I think that you are missing the point.

I presume your $300 million per week figure excludes the one offs' like the Canterbury earth quake.

$300 per week = $15,600,000,000 per year of borrowing and that borrowing will be pegged to the NZ$ for repayment so in other words if the US$ value continues its fall we still repay at the current rate - therefore the lender is betting the US$ will fall and to sweeten the deal we also pay interest in the Kiwi $.

Keep in mind NZ GDP is just $189 Billion per year.

So that new money comes into our economy more or less the same as if the NZ Reserve Bank printed it. What does that money do to our economy? Have you asked for a pay rise Steven and did they say yes here's a 10% rise?

That money is printed by the Reserve Bank and secured against who knows what? Look at America, Greece, Ireland I could go on - at first the debt is private and the increased money causes bubbles then when they predictably crash the burden of to big to fail banks causes panic socializing the loss onto current and future generations.

In the meantime here today you say Steven what is there to discus? You can keep your head buried in the sand.

by michael | 1st May 11, 3:14am 1304176469

Money for us ordinary people is the reward so if you debase the reward you distroy people´s growth. It is of concern to see money being thrown at the economy like confetti. The last time this happened it drove the world to WW2... Unless the FED tightens monetary policy soon 2012 looks very dangerous, and I think that the FED will act soon because the only possible growth in the USA will come from infrastructure projects but with a soggy dollar there is very little to achive.

by Wolly | 1st May 11, 5:36am 1304184976

The name of the game is to manage the mobs and keep fools thinking they will win lotto and that hope will bring them better times, fatter incomes, more stuff.