Australia To The Polls and NZD Crying Over Milk – Antipodean Woes

7 September Australia. 22 September Germany.

RBA on 6 Aug where a 0.25% cut is expected. Based on the OIS 0.5% is expected in the next 12 months according to the Credit Suisse RBA Chance of Priced Moves Index.

AUD Target: 2.75%
Fixing: 2.75%
Meeting Rate* Change
Current 2.75%
6-Aug-13 2.52% -23
3-Sep-13 2.45% -30
1-Oct-13 2.36% -39
5-Nov-13 2.26% -49
3-Dec-13 2.20% -55
4-Feb-14 2.12% -63
4-Mar-14 2.11% -64

Given the wild swings in the polls with Labour lagging far behind till Rudd came back and now suggesting they actually have an advantage, the elections will inject a whole load of volatility into the markets. Yet a Labour win would be currency positive.

Besides the moves in the next few trading days will be led by the AUDNZD pair now that milk will be split in  New Zealand.

Aug. 5 (Bloomberg) — New Zealand’s dollar weakened after
China and other nations suspended imports of milk powder from
dairy exporter Fonterra Cooperative Group Ltd.

China imposed the ban after Fonterra said Aug. 3 whey
protein used in products from baby formula to sports drinks may
contain bacteria that causes botulism.

Taken from Citi.

“Keep in mind 1) NZD is small and relatively illiquid; 2) global FX market liquidity is relatively low right now; 3) Wellington and Sydney are the first markets to open on Sunday PM New York time; 4) NZD positions are long compared to AUD and other commodity currencies because of the RBNZ’s relatively hawkish stance. All of this raises the odds that NZD could get a walloping when FX markets re-open.”

“China represents 17% of NZ exports, Australia 21%. Dairy products are 25% of NZ exports, although we are talking about milk powder. Overall exports are 28.5% of GDP. So if other countries follow China’s example, the impact will be material.”

AUD/NZD has found a bottom ?


I am unsure if that is the way to look at it although the charts suggest that we may have found a bottom in this battered pair. The AUD sometimes have to step up to the role of proxy for the illiquid NZD in times of distress.With the RBA coming up smack on the week of election announcements, I think the trade would be for an AUD unwind. And what better time to do it than in the face of split milk ?