by Collinson FX
Collinson FX market Commentary: August 9, 2014
Icebreaker - RNZYS Winter Series, August 2, 2014
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US Equities rebounded strongly to close the week erasing most of the losses. This contradicted big losses to round out the week in Asia and Europe. Obama publicly announced air strikes against the rapidly advancing Islamic State, as they threatened Kurdistan and advance the caliphate across Syria, Iraq and Lebanon, while threatening Jordan and other neighbours. Obama took military action, against all his natural instincts, while looking about as confident as a deer in the spotlight!
US markets will not interpret this as a positive, conversely the actions of his Russian counterpart, reek of confidence. Russia completed massive military exercises on the Ukraine border and announced a de-escalation which triggered the equity rally in the US.
Putin is in in control and acts pre-emptively, while Obama is in a reactionary mode, which does reek of a 'fingers in the dyke' strategy. The rebound allowed the Dollar to ease, with the EUR jumping to 1.3400, while the GBP traded 1.6775. The RBA statement confirmed an extended low interest rate environment after the frightening Employment number surprised most.
The AUD was unmoved around 0.9275 while the KIWI traded 0.8450. Geo-Political events will continue to drive markets, in the coming week, while Central Bank reactions and Governmental actions will determine the impact.
Collinson FX market Commentary: August 8, 2014
Markets turned negative again overnight after warnings from the ECB. Mario Draghis comments came after an escalation of the Ukrainian crises, resulting in Russian sanctions, which impact global trade (especially Europe). Russia issued sanctions against Europe and the US for many food imports, which will have a greater impact on Europe's economy, as the Russian are their biggest client.
These sanctions are likely to impact world trade and effect their economies more than the sanctions imposed on Russia. Meanwhile Russia masses troops on the border threatening invasion. The EUR slipped back to 1.3350 while the GBP trade 1.6830.
The Australian Unemployment release shocked markets with the rate leaping to 6.4% from 6.0%. This is a 12 year high and spooked many analysts with the AUD crashing to 0.9270. The KIWI managed to hold around 0.8470, despite flagging housing data, accentuating the cross rate.
Geo-Political developments are now holding the whip hand but it is the economic fallout and Central Bank responses that control the market.
Collinson FX market Commentary: August 7, 2014
Hemorrhaging in the equity markets was stemmed overnight with the Geo-Political situation in the Middle East settling and the Ukraine temporarily quiet.
There were no major economic announcements although Russia responded to EURO/US sanctions. An economic standoff could be more detrimental, long term to both Europe and Russia. The USD has also taken a breather with the EUR 1.3380 and the GBP 1.6850.
NZ Unemployment fell more than expected to 5.6%, from 5.9%, but will probably revert now the RBNZ has interjected.
The good news was greeted with a fall in the currency, but losses were regained overnight, with high returns hard to resist. The NZD traded around 8460. The AUD pushed north to around 0.9340 reflecting softness in the reserve and stable domestic economic conditions. Central Banks continue to dominate and distort equity, currency and commodity markets.
Collinson FX market Commentary: August 6, 2014
The Dow was hammered again overnight with some insipid economic reports from Europe and the US and growing fears surrounding a Russian invasion of the Eastern Ukraine. Composite PMI from China, Europe and the USA contracted overnight reflecting the lethargy in the global economy.
The big fear is that the Fed will stop the avalanche of liquidity swamping markets and driving bubbles in equities and commodities. This has led to speculation that we may be seeing a major correction but Yellen is a dove and as such is likely to defer any action. Central bank activity has led to this situation, with banks enjoying huge advantages, while the populous suffer the destruction of wealth. The EUR continued on the well-worn path lower, trading 1.3370, while the GBP improved to 1.6875 with economic data bucking the European trend.
The RBA left rates unchanged, as expected, and continued the serious and conservative outlook on the economy. The AUD slipped back, with a strengthening reserve, trading around the 0.9300 mark. This contrasts the wonderland that the RBNZ live in, with premature rate hikes killing the economic rebound and providing the interest rate differentials that provide further incentive to drive the KIWI higher in the short term.
Jawboning hit the NZD, but the attractive interest rates will encourage further buying until the currency starts to impact the trade related economy and kills the recovery, thereby fulfilling the prophecy for all the wrong reasons. Flight to the USD sent the KIWI back to 0.8470 but Central Bank activity is the major driver of all currency moves.
Collinson FX market Commentary: August 5, 2014
Equity markets rebounded from the worst falls in two years in the previous week. Buffeted by Geo-Political issues and ambushed by the default in Argentina and the European Banking crises relapsing.
The Portuguese Central bank announced a EUR$4.9 Billion bailout of Banco Espirito Santo, but it is hard to understand the state of the European Banking system, with this occurring six years after the GFC. The ECB has flooded the Banks with cheap money which can be reinvested, virtually risk free for years in high yielding bonds, giving the recipients a free kick!? Geo-Political issues subsided with the Israelis calling a temporary ceasefire and the Ukrainians asserting increasing control over the Eastern rebels.
The EUR remains weak, trading 1.3420, while the GBP rebounded to 1.6850 with further signs of economic recovery. The Fed may now be under pressure to raise rates after QE infinity is completed. It is this that has spooked equity markets with a threat to the endless avalanche of liquidity.
It seems unlikely, with the GDP number being an annualized number of 4%, while in reality is little better than the first quarter contraction.
Australian Retail Sales increased 0.6% and Job Ads rose 0.3%, supporting a consolidation of the currency, which traded just above .9300. The KIWI creeps slowly back above 0.8500 supported by attractive interest rate differentials.
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