FUNDAMENTAL ANALYSIS the ECB meeting.
It’s not unreasonable to think that the ECB meeting had a decisive influence on the AUD/NZD cross, as the AUD/NZD spiked up following the ECB move 10 basis points deeper into negative rates, an across the board key rates r e d uct io n and a 30% ex p a n si o n of its asset p u r c h a s e program. The move virtually g u aran t e e d RBNZ action. However, it may have had little to do with the ECB-NZD deposit spread and more likely the effect on dairy exports.
One of the weighing factors on the New Zealand economy over
the past year had been
the collapse of dairy prices; a key New Zealand export. The collapse of global dairy prices was mainly due to the EU
lifting of production
quotas which led to a deluge of dairy into global markets. A further weakening of the Euro would potentially impact New Zealand’s struggling recovery,
particularly with respect to dairy. The chart seems to clearly anticipate the 10 March 25 basis point reduction as it levels off almost immediately afterwards. The Kiwi did not actually test its 52 week low, but for a while
FX
trade-weighted exchange rate is more than 4 percent higher than projected in December, and a decline would be appropriate given the weakness in export prices...”
The RBA seems comfortable with its current e c on om i c p o l i c y , all
things
r e m a in ing e q u a l . However, the prime movers of this cross seem to be on the Kiwi’s reaction to the Fed, ECB and BOJ. There is a
stronger likelihood of it seemed that it would.
It’s worth noting Governor Wheeler’s comments from the 10 March statement4
: “
...The
outlook for global growth has deteriorated since the December Monetary Policy Statement, due to weaker
growth in China
and other emerging markets, and slower growth in Europe. This is despite extraordinary monetary accommodation, and further declines in interest rates in several countries...
...Domestically, the dairy sector faces difficult challenges...
...The
further ECB and BOJ action; the Fed seems to be giving mixed signals. Until then it’s likely that the Kiwi might test $1.0958 per Aussie, particularly on further BOJ action or weaken on further ECB action.
Mike Scrive
Currency Analyst Accendo Markets
1RBA Press Release 12-1-2015 2RBNZ Press Release 28-1-2016 3RBA Press Release 2-2-2016 4RBNZ 10-3-2016
FX TRADER MAGAZINE April - June 2016 33
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