Late last July
we highlighted the importance of dairy products to the New Zealand economy,
and the part played in this by one particular concern, Fonterra Cooperative
Group, which also happens to be New Zealand’s largest company.
The Kiwi dollar is enjoying a decent
surge this AM after two announcements from Fonterra overnight in GMT terms: The
Co-Op has made a tie-up with a Chinese company to manufacture milk based products;
and it has announced that there will not be a further reduction, at least for
the present, in the payment estimate for milk solids to farmer producers, as
had been feared by the market due to weak auction results recently.
It will be remembered that a
reduction in this price was a major factor in July in the weakness of the New
Zealand currency unit.
It remains to be seen if this boost
for the Kiwi will be sustained, especially in light of the known desire of the
Reserve Bank of New Zealand (RBNZ) for a weaker currency, and their stated
willingness to intervene in the market place to bring this about.
Sterling
and Scottish secession
Yesterday’s
comments here on the uncertainty surrounding Sterling due to the upcoming
referendum on Scottish independence resulted in some reflection about the
likely repercussions of a vote to split that country off from Great Britain.
The first thing that comes to mind is
the loss of oil revenues to the British exchequer. This would be a major blow
for the British pound, and would be the factor that would play most solidly on
the minds of currency traders initially.
They might then reflect on the likelihood
that most financial services institutions north of the border, along with a
sizeable number of Foreign Direct Investment (FDI) companies, would move their operations
into England and Wales, which would tend to offset the loss of oil revenue.
So the most likely outcome from our
point of view would probably be very high volatility in all those pairs that
contain GBP. No doubt other, as yet unthought-of scenarios would also play out.
No wonder the Forex market at large
is being cautious right now and allowing cable to drift downward in the face of
all other fundamentals that pertain to the British economy. The polls seem to
be favouring a “No” vote at present but voters everywhere have shown themselves
to be capricious in the extreme when it comes to referendums such as this.
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