Archived IMT (2011.04.18)

Rising inflation, tightening concerns from China, tumbling Kiwi, Finnish election fall-out, sovereign debt fears and more US earnings on tap all dominate sentiment at beginning of a new week.

The weekend decision by the Chinese central bank to raise bank reserve requirements ratio by 50 basis points, the fourth rise this year to 20.5% (record high) was no real surprise given Fridays economic data, though the rather more hawkish rhetoric was, and this more overt hawkish tone could well weigh on risk appetite and commodity currencies going forward in the coming days. It is becoming increasingly accepted by the market that RRR hikes are less offensive to risk appetite than are interest rate hikes (borrowing and lending rates).

KIWI WAS HIT BY NEW ZEALAND CPI came in slightly below expectations sending the Kiwi to its biggest fall in 4 weeks on speculation that the RBNZ will continue to hold rates in the wake of the Christchurch earthquake. The Kiwi dropped back from double and psychological resistance around the 0.8000 level (just above the 5-day MA), with upside seen capped at the immediate resistance of 0.8050top of the daily Bollinger band.

We learn from MNI FX Bullets (service to be made available to our Premium Service subscribers later this month) RBNZ will providing incentives to NZ businesses to settle transactions with Chinese businesses in RMB via a reciprocal RMB25 billion currency swap line with the People's Bank of China. The facility would in essence, give the RBNZ the capacity to borrow in RMB during financial market disruptions and low liquidity.

FINLAND GENERAL ELECTION could well cause a few problems for the single currency, as the True Finn party made significant gains at the expense of the pro bailout government. This result could well throw doubt as to whether Portugals bailout will get agreed, which in turn could well limit further upside in the single currency in the near term, with resistance remaining around the recent highs at 1.4530, as well as the 2010 highs at 1.4580. Below 1.4250 could well open up 1.4030.

USDX STRUGGLES near the 75.25 resistance area, and needs a break above this level to provoke some additional US dollar strength, after finding support at the 74.62 level two days in a row last week.

GOLD AND SILVER continue to push ever higher with silver pushing above $43 and new 31 year highs, as it closes in on its 1980 highs just shy of the $50 mark, and gold prices close in on the $1,500 mark. Oil prices look set to remain supported after Saudi Arabia cuts output in the face of oversupply according to the Saudi oil minister.

By KM - AshrafLaidi.com Staff