In this interview with New Zealand based Interest.co.nz our Head of Media and Research, Chris Weston discusses current economic issues. He also provides an outlook on where certain currencies, commodities and equity markets may be headed in the short to medium term.
The currency markets have faced many different forces since the end of the global financial crisis. Risk appetite has probably been the most influential driver for the longest period of time. In this environment whenever good news was released, be it economic or a macro event, we saw buying in the euro, sterling, Scandinavian and commodity currencies (AUD, NZD and CAD). On the other hand, when bad news broke we saw safe haven buying, with traders flocking to the USD, JPY and Swiss franc.
Interestingly, currencies seem to have returned to more traditional drivers in the last couple of weeks. Traders are now focusing on inflation and economic growth and how that breeds into the perception of central bank rate hikes. With energy and food prices pushing higher, central banks have started to acknowledge these issues. Only recently we saw the ECB put rates up by 25 basis points, while the Bank of England also has an inflation rate twice as high as it would like and this is causing credit markets to price in aggressive tightening over the next 12 months. The AUD and NZD are being pushed higher by "carry" traders looking to get leverage to the highest interest rates in the G10 complex and the Scandinavian currencies are seeing appreciation due to higher oil prices. At the same time, the Federal Reserve is suggesting that inflation forces are 'transitory' and don't look to be putting up rates until 2012 with the USD struggling to find any buying support.
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Updated: 13/04/11
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