Commentary

Kiwi in Flight

Posted by on Mar 14, 2014 in Commentary, Featured, Market News

It’s been a long time coming. Of the major currencies commonly traded, there have been no interest rate increases since 2010 when Australia last increased its overnight rates. Australian rates didn’t last long at those levels and were reduced in stages soon afterwards, matching the other major economies. This time though, things feel different. On Wednesday evening this week, the Reserve Bank of New Zealand announced a rise in interest rates from 2.5% to 2.75% (well, Thursday morning in New Zealand at the time). An interest rate increase in any of the major currencies is as rare as New Zealand’s national bird, the kiwi. It’s currency, nick-named the kiwi was already strong and on the announcement, it flew higher. This might not be great news for mortgage holders in New Zealand and it might not get picked up by many commentators, but to me, this is a significant turning point. New Zealand is a small economy, not even in the top 50 in terms of GDP. Yet it’s currency is traded as one of the 8 majors. During the economic crisis and fall out after 2008, interest rates have been slashed. Other major economies went further and adopted measures such as quantitative easing (QE) to stimulate their economies. The talk is still of how to reduce the dependence of measures such as QE and “normalise” economies. In this regard, the Fed has its own tapering programme running at the moment. To me, the significance of the announcement is that it marks the beginnings of what could be called “normal” again. The New Zealand economy has been growing strongly. Export demand is healthy and many economic indicators suggest strong demand in the local economy with the prospect of inflation. How refreshing to see interest rates being used once more as a weapon to protect against inflation. As for the rest of the Western economies, I suspect they’ll be looking enviously at the Kiwi success. In Europe and the USA, the spectre of deflation has not been totally eliminated. In Japan, they are still working at creating inflation. In the UK and USA, we still have greatly indebted consumers, companies and governments. We’ve had the artificial stimulus of ultra-low interest rates for several years to get our economies bumbling along. Let’s hope the kiwi in flight is the light at the end of the tunnel we all hope...

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Trading in progress for 2014

Posted by on Jan 11, 2014 in Commentary, Featured, Market News, News

Trading in progress for 2014

The first full week of 2014 has seen trading activity resume in full. Yesterday, we had the Bank of England and European Central Bank setting interest rate policies for their economies. The UK rates were held, with UK economic news generally continuing to support sterling. With the US economic growth powering ahead, it has to be reckoned that the Eurozone will eventually arrive at the party and benefit from this growth, in turn returning to growth. However, the Euro was under pressure yesterday as growth is lacklustre to say the least. Probably more accurate to say lacking instead. That was yesterday. Of course, today was the big economic announcement, the first non-farm payroll figures for 2014. After solid figures throughout last year, leading up to the tapering decision last month, it was perhaps inevitable that sooner or later a set of figures would disappoint. We didn’t have to wait long. The 1:30 (UK time) wobble for USD came on the back of disappointing jobs figures. Whichever currency pair you chose to trade, you were pretty much ok as long as you were selling dollars. Excepting CAD, which came off worse. But let’s get some perspective on these figures. The shock value spooked the markets today. But the revision to last months figures was upwards. I suspect we will see an upwards revision next month. I remain of the view that the US economy has some momentum behind it and one months job figures are not enough to stop that momentum. The freezing conditions could cause a further blip in February’s figures though. My predictions remain dollar strength for 2014 and sterling strength too, with sterling outperforming the dollar in the first quarter. I remain pessimistic on the Euro, Yen and Aussie for now and my views will colour my trading decisions for the first months of...

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Tapering at last

Posted by on Dec 20, 2013 in Commentary, Featured, Market News, News

Tapering at last

The biggest talking point among traders for several months now has been “When will the FED start tapering?”.  At least we know the answer now. Wednesday’s FED meeting announced a reduction in the amount of money being thrown at the market, reduced by $10bn a month from $85bn to $75bn. This really is a symbolic gesture. In the overall scheme of things, a reduction of $10bn a month being pumped into the US economy is neither here or there. The economic output of the US economy is well over $15,000bn and growing strongly. The other aspect of the FED announcement was not to expect any changes to interest rates anytime soon. This is a factor in most western economies at the moment – a strong growth in demand and GDP is not filtering through to prices. Interest rates are the weapon to slow demand and prices. Until the growth in the economy starts to take up the slack capacity in the economy, we can expect interest rates to remain low. Once the threat of inflation looms, that is when we can expect real interest rates to rise. For now, the FED has set the path into 2014. This has at least given the markets some direction. This should lead to a gradual strengthening of the USD against other currencies. Now compare the US economy with Europe and the Eurozone specifically. Which one would you want to invest in? A stagnant economy trying desperately to come up with something to stimulate growth, or an economy that has already achieved that as an outcome. With that statement, it won’t take too much to work out where I figure the Euro is heading over the next few...

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Stalemate

Posted by on Nov 4, 2013 in Commentary, Featured, Market News

Stalemate

We reach yet another stalemate as the dominance of the central banks in the currency markets continues after the latest FOMC meeting. The continued manipulation of interest rates through quantitative easing continues. A growing economy being primed by $85bn of money every month, or $1 trillion annually. The FED has on numerous occasions hinted at tapering, but keeps shying away from taking the plunge. It could signal a readiness to reduce the stimulus and avoid the continual back tracking by reducing the stimulus to $80bn a month. In the overall scheme of things, I hardly think a $5bn reduction would make much difference. Politically, it would signal that tapering has begun and move the discussion forwards to how much and when, rather than if. It has to happen. Given the economic growth and the strength in the US stock markets (new all time highs), sooner would appear to be better. As for the government shutdown, the can has been well and truly kicked down the road again until the beginning of next year. We can look forward to more uncertainty and the political horse trading resumes and the biggest economy in the world stumbles on to yet another fudge. Before the latest “settlement”, I said to a group of traders that a solution would be found and the US government would not be allowed to default. That is a given. The only issue in doubt is the political damage. The US seem to be pretty good at inflicting that on...

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Happy Landings as quantitative easing slows

Posted by on Jul 4, 2013 in Commentary, Featured, Market News

Happy Landings as quantitative easing slows

A couple of weeks ago, helicopter Ben (a.k.a. Ben Bernanke) announced the Federal Reserve was going to slow down the rate at which it was printing money. The printing presses, known as quantitative easing were always going to stop at some point. The fact that so much notice was given shouldn’t have come as a surprise. But it jolted the market. In my view, we should look at the background to the announcement, which is a return to economic growth and a fall in unemployment. Over the past few months, the stimulus of billions of dollars being printed aligned with low interest rates has ignited the US economy. There are still elements of risk in the world (we only have to look across the channel to the Eurozone to see risk). A slow down in the stimulus, rather than cessation should lead to continued economic growth in the US and help create a stable world economy. What does this mean to the trading community? Any economy that is showing good growth, falling unemployment, low inflation should have a strengthening currency. Whilst much of the growth has been in place for some months, the printing of dollars has held back the value of the dollar. It should follow that the dollar will appreciate against other currencies over the next few months. But watch out for wobbles on the way. Non-farm payroll figures tomorrow will be eagerly anticipated, as they will be the first figures released since the Fed announcement. Expect market volatility. Look for signs of continued growth, as this is likely to lead to further appreciation of the dollar, specially as weakness in the Eurozone...

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Currency Wars

Posted by on Jan 27, 2013 in Commentary, Featured, Market News

Currency Wars

One of the trading themes for 2013 is likely to be the continuation of currency wars. Real or perceived, currency wars have existed for as long as I can remember. Whether a devaluation of an existing currency, or revaluation, currency wars cause seismic movements in exchange rates. The latest country to join the currency wars game is Japan, with the Japanese Yen losing value against all major currencies since elections a couple of months ago. The Bank of Japan, under political direction from the incoming government has agreed to raise it’s inflation target and adopt quantitative easing, thus weakening the currency. Japan joins other major currencies of the world in the race to devalue. The UK has been a little more subtle in it’s efforts to weaken sterling. Doubts about Britain’s future in Europe, the “growth” of the UK economy and burgeoning levels of public debt do nothing to strengthen sterling. In fact, quite the opposite, with sterling heading in the same direction as the Yen. Heading in the opposite direction in this latest round of currency wars are the Euro, and by association, the Swiss Franc. The Euro (having solved all it’s problems???) is close to a 12-month high against the US Dollar. A look at other currency pairs suggests the US Dollar is strengthening, reaching it’s highest levels since July against the Canadian Dollar and since September against the Singapore Dollar and Sterling. I recall the term devaluation from 1967 (I wasn’t even a teenager then). I didn’t know what it meant. It was just the UK taking part in currency wars back then. I’m sure I could find many other examples littered through history. So as the headlines crop up again, nothing is new in the world of trading. Keep an eye on the news and the actions of central banks. Happy...

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