fxmatters

At the margin, the economic data of late are on balance positive, indicating growth here and generally abroad. This is promising. The NZ GDP release Thursday is expected to fit into this category. But the risks remain unusually high. There are numerous global examples of business failures, job losses and debt refinancing problems. There are mounting tensions e.g. within the Eurozone and between China and the US. All set against a backdrop where expectations in equity and commodity markets are relatively high, and where monetary and fiscal tightening is yet to occur.

The challenge for traders and investors is whether to focus on the gradual improvements or on the risks that still lie ahead? The answer will vary by each individual’s situation.

For me, the number of things that could derail the equity market rally appear too many. And if the equity market falters, so too will the NZ dollar.

A noteworthy risk was highlighted Friday, namely monetary tightening in Asia. There is more to come. A surprise monetary tightening by the Bank of India is of little global importance. Further tightening by China, including (gradual) CNY appreciation again, is another matter. Such an initiative is becoming more probable during April/May. And a Chinese tightening does hold the potential to shake confidence in the equity markets and drive the NZD/USD below its recent 68c floor.