Intraday Market Thoughts

New Zealand: An Island for Hawks

by Adam Button
Dec 11, 2013 23:09

In a world of low and lower rates, New Zealand stood out Wednesday for a pledge to hike rates. Overall, it was a day for substantial risk aversion with the yen leading and Aussie lagging. Up later, AUD stays in the spotlight with jobs report.

New Zealand is among the strongest developed economies and even the strong New Zealand dollar won't keep the RBNZ from hiking rates in early 2014. Wheeler held off hiking the OCR beyond 2.50%, as expected but forecast 225 bps of hikes in the next 2.25 years. No other developed country is on that kind of path. NZD is vulnerable to risk aversion and short-term whims in the market but it's extremely well positioned for long-term gains.

A currency that has been irrepressible in the short term is the euro, which gained for the seventh consecutive day on Wednesday. EUR/USD broke 1.38 but the October high of 1.3830 looms and will make it extremely difficult to extend the streak to Day 8.

What was particularly impressive was the euro's resilience despite a 1.1% decline in the S&P 500 and large slumps in European bourses this month. That's a divergence that can't continue indefinitely, especially with the Fed decision a week away.

The taper got more good news as a budget deal from Congress appears imminent. Nothing is for sure until the votes are in but the House will decide on Thursday. Another solid development for the US are reports Stanley Fischer will be nominated as Fed deputy. His experience in emerging and small countries will be a source of wisdom for the Fed as it seeks to exit QE.

The Australian dollar snuffed out the recent rally with a tumble but the next move is likely to rely on data with the November employment report due at 0030 GMT. The consensus is for 10K jobs with the unemployment rate rising to 5.8% from 5.7%. Last month the economy added 1.1K jobs but job creation was overwhelmingly part-time, a trend that AUD bulls won't want to see continue.

Ahead of tonight's Nov Aussie jobs report, the Premium Insights have 2 AUDUSD longs, and other existing trades in EURUSD, GBPJPY and gold.
Act Exp Prev GMT
Employment Change s.a. (NOV)
1,000 1,100 Dec 12 0:30
Fulltime employment (NOV)
-27,900 Dec 12 0:30
Part-time employment (NOV)
28,900 Dec 12 0:30
Unemployment Rate s.a. (NOV)
5.8% 5.7% Dec 12 0:30

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