Tuesday, 20 January 2009

NZD/USD update

Getting worried about the EUR/USD slipping lower, with 1.3000 a big level, and looking to test lower. This may drag the NZD/USD and the AUD/USD lower. My position in the NZD/USD is not looking good, and I am unhappy with the reaction to the S&P comments last week.

So may cut position out if we move below 0.5200 in next few days.

The NZD does not look like a winner now, and when I feel this way, it is usually best to cut and run.

We'll see......


walter said...

Thnks for this website. I am new here but have enjoyed what I have read so far. Does the USD rise, in general, when the US stock market tanks? If so, why is this the case? I understand the theory that the USD rose when the US stock mkt tanked in Oct to unwind carry trade and other risky investments...but hasnt the carry trade and riskier EM investments been unwound by now? Is the US seen as the strongest of the worldwide tanking economies, even thought its the US that started and is driving this whole mess?
Walter in Honolulu

Kiwi Trader said...

Hi Walter, thanks for your comments!

The US is regarded as the ultimate safe haven. There was some talk of the Euro replacing the dollar some time back, but with global risk (even if it is US generated) so bad, the US is where money goes, even at almost zero interest rates.

I agree with you that most, if not all of the carry trades should have been repaid by now. But investors still like the USD and to some extent, the Yen. Why?

Simply put, the US taxpayer is the ultimate backstop. If Obama decided to do a one off "crisis tax" to sort out the debt, the US taxpayer has the capacity, in the extreme, to write out the cheque. No other country could do this.

Europe would not have the political will, Russia, China, Asia all have living standards that mean that the vast majority of the population are poor, only a few are rich.

On global standards the US is a very rich country, with the wealth well spread across the population.
(admittedly still with very poor and very rich)

Hence in times of crisis money goes into USDs.

Oh, and they also have the biggest armed forces so if push comes to shove your money is physically safe!!

The Japanese, under the US Navy protection, also have a large, well off population and the 2nd largest economy in the world. So they are seen as safe too.

But this is all temporary. As risk drops around the world, the flows will reverse again.

Remember, markets find it hard to hold bad news, people get inured to it. Just look at Iraq.


walter said...

Thanks, KT, but shouldnt there be a more precise way of determining which country should be a "safe haven" for money such as: which country has the strongest financial status going forward and arent there calculations such as % of overall Debt/GDP or % of private sector Debt/GDP or public sector Debt/GDP .... Im not an economist but it seems to me that there might be countries out there that are not so leveraged as we are in the USA. Every sector of our economy is overlevereged which should decrease our ability to invest and spend moving forward .. Im also very worried about interest rates moving up in a period of deflation due to the enormous sums our federal government is gonna have to borrow to bailout everyone, stimulate the economy, fight unjust wars, finance previous huge deficit, etc.

Kiwi Trader said...

I am not an economist either.
Don't trust them, or the numbers they produce. Most economic stats are massaged to produce desired outcomes. "Seasonally adjusted" being the polite term.

I don't trust economic data because the markets react differently to it. It all depends on what was expected. Professional currency traders do not get hung up on any piece of data, they go with the flow. If there was a "black box" where you could punch in all known data and get a predictable outcome, then it would be very easy, no one would place a bet because everyone would want the same side of the trade and we would not have a marketplace.

So there is no precise way to measure data. Another point, everyone measures data differently. GDP in the US is not the same as GDP in Europe or the UK...neither is inflation, employment etc etc.

Finally I agree that interest rates must go higher, as inflation will be back with a vengence. But that is next years story!