CMC Market Commentary

11.30 NZST, Wednesday 6 June 2012

CMC Market Commentary

NZD plants support at USD 0.75c

By Andrew May (Sales Trader, CMC Markets New Zealand)

Post Queens Birthday break, the New Zealand share market experienced a delayed reaction to Friday's disappointing US jobs data dropping at least 1% yesterday. Yet remarkably and over the course of the week so far we've found our dollar sitting comfortably on a firm US 0.75c pedestal.

A relatively short week of local releases has pushed the Kiwi directly into the path of cross currency pairs providing an onus albeit slight, back into risk.

The NZD continued to tread water above the psychological 0.75c support even in the face of weaker than expected US and Chinese growth data indicating a slowing down of economic stimulus last Friday.

When the Reserve Bank of Australia cut rates 25 bpts yesterday to 3.50%, we rallied alongside our Antipodean neighbour just shy of 0.76c before retreating heavily upon being sold off to 0.7524.

However the first positive Fonterra milk powder dairy auction in 6 weeks this morning proved pundits wrong with a 13.5% increase that eventuated in just where we see the Kiwi trading currently 0.7540-0.7560.

I have no doubt that the Kiwi will breach US 0.76c and EUR 0.61c by the weekend as markets await central bank implementation of printing policies beginning tonight with the European Central Bank's Long Term Refinancing Operation (LTRO), the Bank Of England's Quantitative Easing programme on Thursday and Friday's Federal Reserve's long awaited QE3 facility as operation 'Twist' comes to an end. All that to be asked of the ECB, BOE and FED is how much is enough to keep the wheels in motion?

Tomorrow the Reserve Bank of New Zealand releases its June monetary policy statement. The general consensus as we lead up to next week’s OCR decision is a 30% chance that we may see a 25bpts reduction followed by a further 40bpts of additional cuts over the course of the following year I beg to differ. The Reserve Bank will simply wait and watch, all facets set to overseas reactionary.
ends

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