fxMatters.co.nz » General - general

By: Fxmatters  06-Dec-2011

fxMatters.co.nz » General

For all the currency volatility of recent weeks, the NZD remains range-bound, pushing towards the 20-month band high against the USD and toward the low versus the AUD (and CHF). Seen from this perspective, the NZD is caught between a weakening USD and strengthening AUD. Step back even further and this dichotomous force exists while expectations of easy and/or easier global monetary policy prompts general buying of risky/growth assets such as shares, commodities and the AUD, only to be reversed when global growth prospects are threatened either by renewed anticipation of tighter global monetary policy and/or another negative shock. To determine the likely NZD trend requires determining which global force will dominate in the next few months (more so that what might happen locally).

Anticipation of having to resort to further quantitative easing is likely to pressure the USD in the weeks ahead. Meanwhile the contrast between the US and Australia is evident with the RBA contemplating monetary tightening in November. The net effect could be the NZD/USD pushing towards 80c once again. Whether a high NZ dollar can be sustained, though, will probably depend on how long we have to wait for the next negative shock.

  • At the core of the Federal Reserve System is the US Federal Open Market Committee (FOMC), a committee consisting of the 7-person government-appointed Board of Governors of the Federal Reserve System plus 5 Presidents from the 12 regional Federal Reserve Banks (the 5 always including New York)
  • The FOMC meets at least 8 times per year to decide on the appropriate monetary policy setting with any change the result of a majority decision
  • The buying and selling of securities is executed by the Federal Reserve Bank of New York

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fxMatters.co.nz » General

There is no sure thing when it comes to the future but one strong starting point is the likelihood of higher long-term interest rates in the US, a combination of high debt issuance and the removal of the US Fed as a buyer. The other high-probability event is that there will be further debt problems, again a risk heightened by the private sector being left more to its own means this year.