Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 16 July 2014 at 10:46 GMT

Do central bankers really have all the answers?

Director / Accumen Management
United Kingdom
• Kiwi inflation data bodes ill for economy
• Fed chairman Yellen sat on the fence
• UK "recovery" wage-less

Overnight, all the excitement was down under. Well, not entirely but close enough. With Kiwi inflation data starting to show the first signs of a central bank choking the life out of a fledgling economy, does this indicate a slowdown in the rate hiking path expected from the Reserve Bank of New Zealand?

Slow down? Are you kidding? It should come to a complete halt and, if anything, potentially even reverse. I wrote recently that in the absence of a government that knows what it’s doing, the ball is passed to a central bank that knows even less what it’s doing and now, here we are. Whatever growth was originally spotted in the green shoots being smoked down there has now gone (if ever it was there to start with) and the downside is going to start unravelling quite soon.

The problem is, of course, that the RBNZ governor Graeme Wheeler and his cohorts will not step back, will not reassess and are most likely to continue on the path they so errantly began on. In short, dasvidanyia New Zealand.

Otherwise in Australia, the leading indicator print was not much of anything really and failed to move markets too much as did, interestingly enough, a better set of Chinese prints. And now of course, how could I not mention my friend and yours, the US Federal Reserve chairman Janet Yellen. She came, she saw, sat on phonebooks and promptly left. In the midst of all that she confirmed what we already knew, which is that the sky is blue, water is wet and that QE3 will be done by October. Furthermore, it’s going to be an awfully long time after this happens that the Fed will start raising rates. Again, nothing we didn’t already know. She did, however, mention the investor “reach for yield” which I find ridiculous, given that the environment created by her predecessor and his counterparts could not possibly lead to anything else, I mean, did they expect punters to sit on hands and bide their time?

This morning has seen the release of UK employment data, which, in mixed terms, has come in line with expectations but if there was to be anything worrying about the print, it surely has to be the fact that the “recovery” is a wage-less one. Akin to the sound of one hand clapping or a tree falling in the forest with no one to witness it, is this really happening? Conclusions alluding to more slack still remaining in the UK economy abound and thus, hang on to your hats kids, because the Bank of England governor Mark Carney will still be talking about this very slack in months to come and is likely to push out any impending rate hikes to Q2 of next year.

This afternoon sees CAD manufacturing sales and US PPI and Industrial production. However, perhaps more important is the Bank of Canada meeting and press conference later. The market broadly expects a central banker that will nod to a continued steady-as-she-goes methodology and in doing so will not necessarily be more doveish but simply less hawkish. USDCAD has already had a decent move higher in recent days and the upside is still there for the Loonie, albeit with the air getting a lot more rarefied above 1.0800. The 200DMA comes in just above there at 1.0813 and is likely to be the first point of knee-jerk resistance on a blip higher. Overall, I still like the pair to the upside, but watch for volatility around the press conference.

With regard to levels:
EURUSD: Slowly dribbling lower, we’re edging into bids from reserve names into 1.3530/10. No real mention of stops just yet on the downside or upside for that matter.
GBPUSD: Dip buyers seen into 1.7100/10/20 and these have held us there this morning. Topside profit takers into 1.7170/80.
USDCAD: Trailing stops under 1.0720 are there but so are bids into 1.0700 and 1.0690. Topside sellers emerge into 1.0780/1.0800.
USDJPY: Stops above 101.80 have thus far been untouched but could get a look in today. Offers noted into 102.00/30.

Helmets on and good luck out there today.

-- Edited by Kevin McIndoe

Ken Veksler is the director and chief investment officer of Accumen Management, a London-based boutique asset management and foreign exchange consultancy. Read more of his posts here.


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