The mixed messages keep coming. Last week Standard & Poor’s lowered its outlook for the UK’s top-notch AAA rating, raising fears that the US may face a similar fate soon.
By the end of the week, though, it was the GBP that had strengthened 4.9%, just behind the leading group of currencies rallying against the USD (topped by the Hungarian Forint +6.3%).
Late Friday there was also news that the US government will follow the European lead and raise the subsidy on US dairy exports. The NZD/USD did dip this morning but it is still up 5.4% over a week and a morning.
Behind the rallying ‘risk’ currencies is the green shoots scenario. Faith is growing that we have turned the corner in the financial crisis and the consequent global recession. This may not have pushed share prices up sharply last week but it did have a significant impact on currency markets.
In particular it places currencies such as the GBP and EUR above the trading ranges of previous weeks. For technical traders – and they form a large proportion of the market – the rally has created bullish indicators such as the EUR/JPY 50-day average crossing above 200-day average. The momentum shown, and the likely supporting fundamental reports to come, imply further upside risk for the NZD.
As suggested a couple of weeks ago, 63c is a likely place for the NZD/USD to stall but the odds of a NZD/USD within the 65-70c range are rapidly increasing.