Loonie Supported By Rate Hike Rhetoric Weakening global economic outlook, ongoing sovereign debt crisis in the Eurozone and flaggy domestic economic recovery should be convincing factors leading to depreciation in Canadian dollar. However, similar to other commodity currencies, the loonie has been getting stronger again the US dollar since early June. The key reason is that the economic situation in the US is even worse. Other than this, CAD is also supported by safe haven demand, bottoming of monetary easing in the BOC and strength in crude oil prices. Read more... Kiwi To Be Support By Interest Rate Differential And Soft Commodity Prices Similar to the Australian dollar, the New Zealand dollar also proved to be resilient despite concerns over global economic slowdown. Strength of the kiwi against the backdrop of sluggish domestic economic recovery after emerging from recession in 2009 has led to talks of official intervention of the currency market. Prime Minister John Key said last week that a strong NZD would make the economy 'splutter and stutter and probably stop' and that 'a rising exchange rate takes pressure off the Reserve Bank. Base rates are still much higher than they are generally around the world -2.5%. There are options, so let's see'. In our opinion, it would be rare for the RBNZ to intervene at the current trend of the NZD. Concerning the outlook, while the kiwi has been pressured by the lack of stimulus from the Fed and the ECB, it would strengthen again in the longer-term as supported by interest rate differential and the rise of soft commodity prices. Read more... RBA Intervention Unlikely Despite AUD Strength While Australian dollar has so far been moving within a broad range of US$0.95 and US$1.10 since July 2011, its resilience over the past few months has surprised the market. It's conventional wisdom to expect risky asset to decline in tandem with deterioration in global economic prospect, however, Australian dollar gained +10% against the US dollar in the 2 months of June and July even though sovereign debt crisis in the Eurozone worsened and China's economic growth demonstrated further signs of fatigue. Recent strength of Australian dollar can be attributed to the relatively higher yield in Australian bonds and higher credit worthiness of the country's assets. Bottoming of the AUD's decline since February was coincided with SNB's intervention. This appeared that investors and official sectors have turned to Australian dollar from Swiss Franc for safe-haven investment. Read more... |
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