AUDCAD – Pop to Parity?

AUDCAD – Pop to Parity?

Chart Of The Day

Everyone has their eyes out for the Bank of Canada rate decision tomorrow at 1000 NY time. Aside from the ECB meeting a day later it is the most important event of the week. The market is leaning heavily long loonie anticipating that the BOC will signal that a rate hike is coming in October and given the positive stream of Canadian data of late the speculation may be correct. Still, there is not an insubstantial chance that the BOC may choose to hold its powder dry and remain stationary for the time being.

Meanwhile the RBA last night reaffirmed it neutral stance but clearly tilted in the hawkish direction by noting that the growth and inflation were likely to increase and at very minimum suggesting that no easing will occur in the immediate future. This has helped to push the Aussie through the key .8000 level and it remains well bid into the New York close.

If the BOC does surprise to the downside the loonie is sure to crash which will pop AUDCAD through the parity level almost instantly. On the other hand, if the Canadian monetary authorities confirm a hike, the move could be more muted given the massive rally already in place.

NZD/USD – Sell the Pop?

NZD/USD – Sell the Pop?

Chart Of The Day

The kiwi dollar has topped out forming a double top at the 7000 figure and is now in a clear distribution channel. Although the pair sports the best yield in the industrialized world the yield is very likely to but cut sooner rather than later.

The pair popped a bit on talk from the RBNZ that they may focus on macroprudential tools to manage the slowdown in housing and the dairy sectors leading the market to believe that the yield will stay in place for a bit longer, but whatever actions RBNZ takes, they will likely be forced to cut rates at the next meeting as the slowdown from China is clearly starting to weigh on the New Zealand economy.

The kiwi could rebound a bit on a short covering rally, but the pair faces stiff resistance at the 6900 figure and even greater selling pressure at 7000 level so any pop is likely to be a good opportunity to reestablish shorts for another run at the 6500 handle.

Can Kiwi Pop?

Can Kiwi Pop?

Chart Of The Day Uncategorized

Even by the miserable measures of the recent comm dollar rout – the performance of the kiwi has been especially weak. While Aussie and loonie have rallied with any uptick in risk flows, the kiwi has been dormant marking time at the 6400 level. Part of the reason may be the fear that RBNZ authorities will cut rates at tomorrow’s central bank meeting.

However, there is little cause for any monetary stimulus now. Although price levels have plummeted as they have everywhere in the developed world due to plunging oil prices, the actual New Zealand economy has held up well and any rate cut at this moment would be premature. If RBNZ holds off and better yet shows no signs of any near term easing the kiwi could quickly verticalize on short covering and carry trade demand as the unit’s 2.5% yield looks very attractive in a zero rate world.

USD/JPY March Seasonality

forex seasonality Japanese Yen Kathy Lien

March is the fiscal year end in Japan and there tends to be a significant amount of repatriation of foreign earnings as companies look to window dress their balance sheets. This leads many investors to believe that USD/JPY will have a downward bias this month. However taking a look at how USD/JPY has behaved in March between 2001 and 2013, we can see that seasonality has very little impact on the currency pair. In fact over the past 6 years, USD/JPY appreciated 5 times in March. Therefore while seasonality is interesting, it should not be blindly traded.

FOMC Voters 2014 Dove Hawk Scale

Fed Rate Cut Federal Reserve FOMC FOMC Dove Hawk Scale fomc yellen forex blog Kathy Lien

The Federal Reserve’s Open Market Committee changes every year and 2014 in particular iss a big year for the Federal Reserve because there are a number of new faces on the Federal Open Market Committee or FOMC. With her official confirmation on Monday, Janet Yellen will become the first woman to lead the world’s most influential central bank. Having served as the Vice Chair of the Federal Reserve since 2010, she is not new to the FOMC but her voice will be heard much louder this year in the highly anticipated quarterly post monetary policy meeting press conferences. Yellen is a vocal dove that puts growth ahead of inflation but actions speak louder than words and her vote to taper asset purchases in December suggests that as Fed Chair, she may not be as dovish.

Every year, the makeup of the Federal Open Market Committee also changes with previous voters rotating out and new voters rotating in. This year’s policymakers have the huge responsibility of determining the pace that asset purchases will be tapered and when Quantitative Easing will end.

Two major doves favoring easier versus tighter monetary policy (Evans and Rosengren), one moderate hawk who favors tighter policy (George) and one centrist (Bullard) will be rotating out of voting positions. They will be replaced by Plosser and Fisher, two major hawks, Pianalto a moderate dove and Kocherlakota, who shares a similar bias as Yellen.

Former Bank of Israel Governor Stanley Fischer has also been nominated to replace Yellen as Vice Chair and if confirmed, another hawk would be added to the roster.

There will also be 2 vacancies this year – Elizabeth Duke’s seat (she retired in summer of 2013) and Sarah Raskin’s slot once she moves over to the Treasury. Jerome Powell’s term ends January 31st but President Obama is considering a reappointment. This would leave the central bank more hawkish and willing to follow Bernanke’s proposal for reducing asset purchases by $10 billion at every meeting this year.

Click on image to zoom

2014 FOMC Voters

Openly Dovish

New Fed Chair Janet Yellen
Fed Board Member Daniel Tarullo
NY Fed President William Dudley

Minneapolis Fed President Kocherlakota

Moderately Dovish

Cleveland Fed President Pianalto
Fed Board Jerome Powell* (term ends Jan 31 but possible reappointment)

Moderately Hawkish


Fed Board Member Jeremy Stein
Vice Chair Stanley Fischer** (waiting confirmation)

Hawkish


Philadelphia Fed President Charles Plosser
Dallas Fed President Richard Fisher

2 Vacant Slots

Leaving 2014

Fed Chairman Ben Bernanke
(dove)
Kansas City Fed President Esther George (moderate hawk)
St. Louis Fed President Bullard (centrist)
Boston Fed President Eric Rosengren (dove)
Chicago Fed President Charles Evans (dove)

Potential Replacements for Vacant Slots

Lael Brainard, the former Treasury undersecretary is a possible candidate to replace Sarah Raskin’s seat on the Federal Reserve Board of Governors. She stepped down from the Treasury in November and has been known to play a major role in negotiations with China and Europe during the sovereign debt crisis. Brainard is a strong negotiator who pressured European leaders for a more aggressive response to the debt crisis. Thomas Hoenig’s name has been floated around as a possible replacement for Duke. Hoenig is a former Kansas Federal Reserve President who was a vocal hawk during his time at the central bank. Finally Jeremy Stein is expected to step down from the Fed and return to teaching at Harvard in May, which means that he could leave another seat vacant. The Obama Administration will be eager to fill these slots quickly and bring the FOMC back to full capacity.

February RBA Meeting – How Has the Economy Changed

aud/usd Australian Dollar australian dollar forecast Kathy Lien Reserve Bank of Australia

The Reserve Bank of Australia’s monetary policy meeting is this evening. Only 4 out of 28 economists expect the RBA to cut interest rates. Here’s part of the reason why. Take a look at how the economy has performed since the last meeting in December:

Forex – What I Like / Dislike 01.25.13

British Pound CNBC eur/usd forex blog Japanese Yen Kathy Lien

Will be on CNBC Street Signs this morning and wanted to give you a sneak peek of my notes:

I like EUR and AUD

For EUR:
– All of $ that was parked in Switzerland and U.K. for safety and now its coming back
– Strong German data means IMF and others could be underestimating EZ growth
– ECB begins taking back liquidity with LTRO repayments

AUD
– Sharp move lower not warranted
– Chinese data consistently surprising to upside
– RBA will leave rates on hold

I dislike

GBP
– Triple Dip Recession Risks
– Investors and central banks dumping GBP
– Talk of EU Referendum weighing on currency

JPY
– BoJ Easing, need I say more?
– Yen weakness not helping trade much give territorial dispute with China
– Strong uptrend, keep buying USD/JPY on dips (or selling yen on rallies, depends how you want to say it)
– Incoming BoJ Gov in April could speed up open ended asset purchases