Wednesday, March 07, 2007
The first of three central bank policy announcements within the span of 17 hours resulted in the RBNZ hiking rates and suggesting further tightening may be required. So the kiwi promptly started acting like a clay pigeon again and dropped a percent before you could say 'pull!'
What gives? Well, the RBNZ suggested that they will take a page out of PBOC's book (shock, horror!) and look at non-interest rate tightening measures.
Interesting. They also noted that they did not wish for the currency to be the primary macroeconomic variable providing a drag on the economy. Perhaps they're getting tired of being pushed around of Mrs. Fujiwara (and Johnny Quantfund)? If this becomes evident, and there is no guarantee that it will, then the short kiwi trade might become another 'elephant trade' like it was this time last year.
Tomorrow sees the ECB hike rates and the BOE in all likelihood on hold. The key for markets will be Jean-Claude Trichet's monthly panegyric to...himself. Will he continue to state the ECB policy is accommodative? If so, look for Bund yields to narrow to Treasuries slightly and for the euro to retain today's perkiness. If, however, he notes that 3.75% is no longer accommodative or even only modestly accommodative...the moves in the other direction could be substantial.