Currencies | Apr 09 2010
Craig Ferguson, Director of Strategy Antipodean Capital reports:
This week may be looked at in coming months as the time when economic data and fundamental drivers turned decisively in the NZD’s favour. Overnight the Fonterra auction, where spot dairy prices rose by 21%, suggests that rural sentiment is likely to explode higher in coming months.
Given that NZ is a predominantly rural economy, the odds are high that a rural kickup will flow through and validate the early leading signs evident in the NBBO survey a month or so ago, and yesterday in the QSBO survey, that businesses are starting to invest, expand and employ, and that in 6-12mths we will be thinking of 4-5% GDP growth.
Yes, the current data is soft on housing and retail, but if farmers are more confident, the rural retailer will pick up too. Thus, this week may mark the point at which MT NZD sentiment turns up, as dairy follows OECD LEI gains (chart 9).
The RBNZ will have noted the overnight auction, and they know that means the economy will be running well by year end. Thus their mid year hiking cycle should kick off on time. It also means that the period of sharp NZD under performance may start to stabilize or reverse.
We are not sure whether this means AUDNZD won’t get to our 1.35/1.40 original targets (chart 7), or whether NZDCAD will avoid hitting .68/.65 (chart 8). We’d stick with NZD shorts in the ST simply because there isn’t any evidence to say otherwise (chart 6).
However we feel less keen to sell NZD against AUD or CAD now, knowing what we know, than before. Is the message, “don’t add to NZD shorts, and look to exit those shorts (and reverse) with more haste as those original targets are achieved”? This is a clear message to hedgers, exporters & importers alike.
All charts courtesy of Etrade.
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For a formal introduction to Craig Ferguson, read Rudi On Thursday, 11/07/2007.
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