fxmatters

The US share market rally of the previous week came to look like a dead cat bounce last week. The problem was although the US fiscal package was huge, as expected, there was vagueness about how the US financial system, and the economy as a whole, would be shielded from banks’ bad debts.

Problems didn’t end there, mind you. European discussion and statistics were negative. Japanese data have been likewise this week. The G7 called it a “severe global economic downturn“.

The end result for currencies is a firmer USD and JPY but, significantly, the movements were relatively small and recent highs have not been broached. Equally telling, the strongest currency last week was the Chilean peso, buying coming before and after the 2.5% Chilean lending rate cut. In other words, markets are responding to signs of aggressive policy initiatives.

Meanwhile the Australian economy is not faring too badly judging by the small rise in jobs during January. More figures like this and people will come to believe the RBA’s forecast of an Australian economic “pick up from late 2009″.

All in all, the broad flat-to-rising NZD scenario depicted last week still appears the most likely.