Monday, January 13, 2014

Non Farm Payrolls throw the cat among the pigeons | The Kiwi “Rock Star”

The US Non Farm Payrolls report last Friday, at 74,000 new jobs, was a major disappointment for the markets. This was so especially after the private payroll contractor, ADP, had on Wednesday inferred a rise in jobs of 200,000, or even in excess of that figure. According to Dow Jones Newswire, several big name pundits had gone so far out on a limb as to predict that the outcome for December would be 250k and, in one case of a real miss, 300k. No doubt they had an expected seasonal increase for the Christmas period in mind when giving their forecasts.

The Federal Reserve is a great believer in the old adage that one swallow does not make a summer and will, officially at least, be looking for a series of bad numbers to put it off its declared track for an end to QE, but right now there are early signs the major currency pairs that contain US dollar elements are reacting in accordance with what might be expected. The EURUSD pair, as we pointed out here, has been in a quiet uptrend for some time, and this tendency is in evidence this morning.

Both the AUDUSD  and the USDJPY are in trend reversal mode (see above).

The Kiwi “Rock Star”

Lat November we identified the AUDNZD pair as a High Probability short trade – in other words the New Zealand dollar would increase against the Aussie unit. Now the New Zealand Sunday Star Times newspaper is reporting (here) that the chief economist of HSBC bank New Zealand, Paul Bloxham, is predicting that the Kiwi will soon reach parity with the Aussie and then pass it to reach a comparative value that has not been seen on a sustained basis for a very long time indeed. Bloxham, according to the paper, told CNBC TV in the US that "We think New Zealand will be the rock star economy of 2014”.

The reasons for the optimism are three fold: The rebuilding of Christchurch following the devastating earthquake in 2011; the housing boom that is now under way and which the NZ government will attempt to prevent turning into a bubble with interest rate increases; and the rise in the price of dry powdered milk, which soft commodity New Zealand exports in increasing quantities, most notably to China.

Nothing like this is ever a given, however. For one thing, AUDNZD has not been able to breach a very strong support level, in the 1.07 region. Going through this will bring the pair to a valuation that has not been seen in 20 years. Parity is outside of the range of the historical records we possess. In addition, the paper reports that the voices of caution warn that New Zealand’s two main export markets, Australia and China, are expected to slow, and the New Zealand government “is looking to return to budget surplus in 2014-15”, which will mean that “ the strong government consumption growth is unlikely to be sustained”.

We will, however, and once again, be setting the OmiCronFX Silver Trigger algorithmic routine against the AUDNZD pair, to only take short trades.

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