The NZD is one of the most over-valued currencies compared to its long-run average real effective exchange rate and its historically low yield advantage. In a rising global yield environment, where global investors lose interest in squeezing every last bit of juice from somewhat higher yielding assets, the NZD should under-perform. Indeed, in recent months, […]
It is evident that the market has grown tired of the divergence in monetary policies as a theme driving currencies. The USD has to a significant extent already built in a tightening cycle. The market has paid more attention recently to nuanced shifts away from further policy easing in Europe and some other countries. The […]
Fed Chair Yellen may have sounded soothing two weeks ago. However, the framework she outlined is consistent with one more hike in the FOMC projections to four this year. And the balance of risks has shifted towards higher rates still next year. Risks, even without the possible fiscal stimulus, have been balanced for some time. […]
The NZD/USD appears to have broken out of rising trend in place since mid-2015, and now developing a declining trend. Its fall in the last week or so has been persistent and rapid, suggesting a significant shift in sentiment is taking hold. Global equity markets appear more fully priced for a stronger global economy and […]
The outlook for the Eurozone economy has improved with business confidence surveys at multi-year highs and a stronger global backdrop; important for the Eurozone given its relatively high share of exports in GDP. Headline inflation has jumped sharply to surpass the ECB’s medium-term target for the first time since Jan-2013. This may be generating some […]
In a speech that was largely an historical account of the evolution of policy, Chair Yellen emphasized a gradual pace of policy tightening, while sending a clear signal that, barring a surprise, a hike on 15 Match is planned. The USD has weakened on the speech mainly because Yellen has given no indication that the […]
Alternative measures of core inflation in the US, including the Dallas Fed’s PCE trimmed mean measures, show inflation is now very close to the Fed’s mandate and in a rising trend. Core CPI measures, including the Cleveland Fed’s trimmed mean and median, are well above the mandate. Inflation trends globally appear to have turned higher, […]
Fed speakers have raised the probability of a 15 March rate hike. They appear to see the next meeting as offering a window of opportunity to get ahead of a three hike agenda this year, allowing the Fed more space to assess conditions through the middle part of the year in an environment of heightened […]
Mnuchin and Trump reinforce a growing impression that the US administration wants to reset US global trade relations and they prefer a weaker US dollar. Rising uncertainty of over progress towards US tax reform appears to be undermining confidence in the US economic recovery and the USD. Emerging and commodity currencies have benefitted this year […]
A confusing set of minutes that say, on the one hand, many want to raise fairly soon, but on the other, many say there is likely to be ample time to respond if signs of rising inflation pressure emerge. Many want to emphasize a gradual rate tightening outlook, but several, it seems, want the Fed […]