Market riding on a wave of optimism
It seems there are a queue of people now explicitly or implicitly predicting a stronger NZD and AUD: (futures traders are betting on higher AUD, JPMorgan is pick higher commodity currencies and Goldman say buy emerging country currencies. All are of the same theme, namely that we are in a period now of a general shift to risk.
Last week that shift resulted in the exchange rate rises versus the USD for the Polish Zloty (+6.8%), South African Rand (+6.1%) and Mexican Peso (+5.9%), to name a few; showing the NZD (+2.8%) to have been modest.
The big test is likely to come in the form of March quarter earnings reported by corporates over the next few weeks, as more generally ‘risk’ is still tied to the US share market. Reports start with Alcoa this week and GE and Citigroup next week. Given people are on balance seeing things through rosey glasses at present, the risk bias is likely to be that earnings disappoint but just when and why is a guessing game.
Closer to home the RBA policy decision Tuesday afternoon provides further potential to push the AUD (and hence NZD) higher. It would be a major surprise if the RBA did not indicate same cause for a pause in monetary easing; once this announcement is out of the way (maybe with a 0.25% rate cut as an insurance move), the AUD is likely to drift higher.
In all, there is an upward bias to the NZD at present coming through from international forces. Another touch of 60 US cents is very possible. A move even higher is possible – indeed likely at some stage this year – but there remains plenty of opportunity for the nascent global optimism to falter.
