Kiwi attempts to consolidate
Apr 10, 2006
The NZD/USD is attempting to consolidate in a 0.6000 to 0.6200 band, as the financial markets await the March quarter consumer price index, due for release on April 17, and the Reserve Bank's official cash rate review on April 28.
As long as the AUD remains supported and the USD remains relatively stable against the JPY and EUR, then the bias remains for volatile but basically directionless trading by the NZD/USD during April.
However, the risk of another NZD/USD plunge remains, especially as the consensus is moving to two hikes in the Fed funds target rate, to 5.25%, in the June quarter.
Combining this expectation with any hint of a cut in the OCR by the Reserve Bank could spark the next significant NZD/USD move lower.
Ready for bad news
The New Zealand interest rate markets spent Friday getting lined up ready for what would be, in market terms, bad news. A stronger than expected non-farm payrolls in the US
would signal a sell off in the US that would cause the local market to reconsider how close to US yields it can go and still be considered "good value".
As it turned out, the US figure was a "bad" one, and the response was the expected selling. On Monday the local market will have to consider whether it responds immediately to the US move, or waits until the US market trades tonight before committing to a change. This approach of doing very little on Monday while the Northern Hemisphere is still enjoying its Sunday night sleep is a usual response.
Often it is the case that a large move in the US on a Friday is tested and found wanting on the following Monday. In such circumstances the thinly traded New Zealand market
tends to be better off leaving well alone on Monday and responding to the net two-day move on Tuesday.
