Antipodean Alert : AUD and NZD
2 Main Developments in Australia last week
- No shutdown in Australia and the debt ceiling hike went as smooth as a whistle and Fitch affirmed their ratings. http://finance.yahoo.com/news/fitch-aussie-debt-ceiling-hike-080558388.html
- A cash injection of AUD 8.8 billion from the treasury to deal with potential headwinds from the global economy
Australia – one of the top holiday destinations for Singaporeans, study destination and migration destination too.
China’s favourite too. Australia beat the US as China’s favourite investment destination between 2005 and 2013. Global reserves allocations into the AUD have been strong in Q2.
There are reservations on the strength AUD these days although we should not be expecting full scale intervention with the RBA, even with their 8.8 billion arsenal and comments last week from RBA’s Lowe that a lower AUD “would be helpful in rebalancing growth in the economy.”
A top in AUD appears to be in place even as we have the RBA announces their cash target rate next week on 5 Nov. The expectation is for no action with the RBA conserving their rate cut bullets for the medium term.
Reasons for a pull back :* reallocations back into EM out of AUD
* slowdown in Chinese investments as focus shifts to GBP and Europe
* uncertainty over the Chinese CCP meeting next month
AUDSGD currently at 1.188 after a high of 1.2052. We could see a pullback to the 1.1735 level in the near term. AUDUSD could similarly drift towards 0.9430.
New Zealand is one of the smalls (small currencies). Not exactly the most liquid except for the AUD/NZD pair which has gone steadily higher in the past month.
The RBNZ’s rate decision is exepcted on the 31 Oct at 4 am our time and they, like Australia, are not very keen on a strong currency. In Governor Wheeler’s speech last week, concerns were raised that the high interest rates would drive up the Kiwi and damage the country’s exports. He said that the central bank would intervene in the currency if required but had limited resources to do so.
Whilst it is not prudent to be overly exposed to a country whose currency runs amok on milk export contamination, it is still a great holiday destination.
The NZDSGD has fallen to 1.0271 in the month of Oct and looks like it has a little room to edge lower before the long term support at 1.00 which would be a good level to buy but probably not before the December holidays.