This text is from blog famous currency strategist Joel Kruger .
A BREATH OF FRESH AIR – Well done Mr. Wheeler! It has only been a short time since your term as RBNZ Governor and you are already making some impressive moves. I applaud your speech from earlier today and believe your approach to be spot on. You seem to realize that you have come into power at an opportune time. Instead of curling up in a corner and sticking your thumb in your mouth, you welcome the over-appreciation in your currency and are ready to seize this very compelling invitation to aggressively short your currency against any number of currencies. I am shocked that others in your position have failed to consider taking advantage of the same opportunity, with their currencies also at longer-term cyclical highs.
See daily forex technical analysis (bearish NZDUSD, EURUSD, USDJPY) :
ENGLISH LESSON – While you concede that it would be difficult for your central bank to have any meaningful impact through intervention efforts, you also appreciate that if timed right, this intervention could act as the catalyst for a much needed, significant depreciation in your exchange rate (your colleague Bill English who is impervious to risk, fails to understand this concept, and doesn’t get that at current levels your peashooter could actually be loaded with real ammunition). Oh my bad Mr. English, I guess you are right because the all powerful and influential Bank of Israel wasn’t able to successfully step in and quite profitably intervene on behalf of its currency over-appreciation several months back. The Bank of Israel seemed to realize that although they may have only been holding a peashooter, if timed correctly, as you, Mr. Wheeler have so eloquently articulated, the intervention could be quite effective and lucrative. Mr. Wheeler, you also seem to understand that while interest rate differentials are currently in your favor against most of the major currencies, once these other major currencies see monetary policy reversals in their respective economies, these yield differentials will initially narrow, and ultimately widen in favor of these other currencies.
CARPE DIEM – You hit the nail on the head when you referenced the high correlation between global equities and your currency. Here too you can see that this equity rally is not reflective of any really underlying fundamentals, but a function of abnormal, and unconventional monetary policy accommodations from “central banks representing 2/3 of world output.” Well there certainly isn’t much more room for additional easing, and clearly this ultra accommodation can not last much longer. It seems you also realize that it doesn’t take a reversal in policy from these central banks for the weighing impact on Kiwi to take hold. All it takes is the expectation for these reversals to play out, and I believe the wheels are in motion. Global equities will fall hard over the coming months, and so too will your currency with them. You are cognizant of these realties and seem more than willing to actually step up and take the risks necessary to achieve what will be enormous profit in the months ahead. Well done!
