Wednesday, April 23, 2014

OmiCronFX enters an AUDNZD position after NZ rates decision | Forex market wants action, not talk on Euro strength

As expected, the Reserve Bank of New Zealand last night (GMT) raised the Official Cash Rate to 3%. In the press statement accompanying the decision, the governor, Graeme Wheeler, ticked all the boxes in terms of why such a move might be necessary: NZ economic expansion continues apace – GDP is estimated to have grown by 3.5% in the year to March; prices for NZ export commodities remain high; nett immigration continues to increase, which is boosting housing demand; consumer and business confidence remains high; and inflationary pressures are becoming apparent.

The rise in NZ rates comes hard on the heels of the announcement of the lower than expected inflation ratein Australiayesterday. All of this bodes well for a short position in the AUDNZD pair, which was entered by the OmiCronFX Mandelbrot routine last night, on the price move that took place after the RBNZ announcement.

Forex market wants action, not talk on Euro strength

Mario Draghi speaks later today in Amsterdam and the Forex market is primed for more rhetoric from him that will be designed to reduce the value of the Euro. This is expected to reinforce the possibility of some form of Quantitative Easing (QE) in the Euro zone.

However, if past experience is anything to go by, talk alone will not solve the problem that the ECB perceives in a strong euro. Those institutions with the power to move the market are waiting for action, rather than talk. They also know that conventional means of affecting QE, the purchase of sovereign bonds, is a much more difficult proposition in the Euro zone than it is in either the US or the UK. This is because there is no such thing as a Euro bond, and splitting purchases in an effective manner between the separate states, who all issue their own bonds, is known to be difficult.

It will be interesting to hear what the ECB chief has to say later today in the Netherlands.

No comments:

Post a Comment