fxmatters

After dealing to a heavy workload and a hacker, the regular fxmatters blog is back. Besides issues to do with time management and website security, the other lessons I take from recent months/weeks are twofold.

Lesson 1. The US dollar is not on a one-way downward path (and hence the NZD/USD is not on a one-way upward path). The last few months have proven that exchange rates are in a broad sideways trading pattern. There are many problems in the US but there are many financial problems elsewhere as well.

Lesson 2. The US is likely to exit their (huge) monetary rescue package sooner than Europe. The Fed comments imply this (including Bernanke speech). The data being released imply this. It is this fundamental monetary policy pressure, as much as concerns about Greek debt, that appears behind the current USD rally.

There is no sure thing when it comes to the future but one strong starting point is the likelihood of higher long-term interest rates in the US, a combination of high debt issuance and the removal of the US Fed as a buyer (and possibly changing to a seller).

The other high-probability event is that there will be further debt problems, again a risk heightened by the private sector being left more to its own means this year.

Higher US long-term interest rates and the odd debt problem suggest a few rough spells for the US share market, and hence share markets in general, further adding to USD appeal (as a flight-to-safety).

All in all, a run down to around 65c is to be expected for the NZD/USD over the next few weeks within a broad sideways trend.