FYI | Apr 12 2006
Forex traders have their eyes firmly on the AUD/NZD "cross" these days, and with good reason. Not that long ago, the beginning of last December to be more precise, the cross rate broke through 1.05 and all the market seemed to be looking at was both currencies moving towards parity.
Fast wind forward to mid-April and what are we looking at today? AUD/NZD at 1.20. Talking about winds of change.
ANZ Bank’s currency specialist Craig Ferguso asks this morning: When will it stop?
His answer: Possibly not for a while yet. That is, if fundamentals are any guide.
Ferguson is old enough and wise enough to add to his statement that every strong trend has its twists and turns. So the winds of fortune could take a breather for the Aussie dollar vis-à-vis its trans-Tasman neighbour. In fact, Ferguson says he’d not be surprised to see some major pullback from the 1.20-1.23 "window of Fibonacci resistance" (widely used signal in technical charting) "over the coming months".
The catalyst for this change, he suggests, could well be as simple as NZ economic data, as the Kiwi economy appears to have struggled through its worst patch.
Don’t get his message wrong, however, any pull back in the AUD/NZD, which could fall as low as 1.13 Ferguson believes, should be regarded as a clear buying opportunities. In Aussie dollars, of course.
The key factor in this belief is interest rates. Ferguson acknowledges the RBNZ is not quite at the stage of easing NZ interest rates, but it will happen eventually. On the other side of the Tasman, the RBA is not considered ready to start raising Australian interest rates just yet, but Ferguson believes recent data suggests Australian rates are likely to be increased in 3-4 months time.
The other aspect of note is diverging commodity prices, with Ferguson pointing out NZ’s are falling, whereas Australia’s are blowing sky high. That divergence doesn’t look set to end any time soon, he says.
Bottom line: don’t count on any lasting comeback for the Kiwi dollar in the medium term.