The Yen set to strength against USD

After the recent rally in the USD I would be looking for some weakness. The market is due for some bad news. My bet is that the bad news over the next few months is going to be the 2nd stage of the property crisis. Stage 1 was the sub-prime mess, and next we are about to move into a succession of ARM-reset initiated foreclosures. This will kill any confidence inspired by the recent rally in equity markets. I would also suggest that it will also likely prompt the Fed to bail the US government out of another truck load of debt.
Anyway, this chart structure is telling me that there is considerable (6-point) resistance to a stronger USD, so on this occasion I sold USD-JPY. The target price is around 94.60.

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Andrew Sheldon www.sheldonthinks.com

AUD and NZD appear consolidating

The Australian (AUD) and New Zealand dollars (NZD) have recovered against the USD from their lows over the last week. There is more upside, but I would not expect it to last. There is really no basis for celebration in the coming months, so I would expect a series of short term rallies. The idea that low interest rates can stimulate the NZ and Australian economies is really false advertising. Since when is the answer to excess debt more debt. We will instead see more printing money, but give it time. In the meantime, its denial.
A stronger outlook for these economies can be expected when we see a recovery in food prices. Basically the problem with these two countries is that we need to see a lot of deleveraging. So we are not going to see a lot of spending by the private sector. Expect government public works. The farm sectors will fare the best, but they are just a smart part of the economy, but they will help the external account for both economies.
The NZD and AUD are likely to consolidate for a while. The John Keys Conservative government is saying the right things so I would expect foreign markets to be supportive of his government.

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Andrew Sheldon www.sheldonthinks.com

NZD outlook presents good investment prospects

The NZD is languishing at new lows of 49.5c to the USD. The question is - will it fall further to 40c, the hostoric low last reached in 2003 if I am not mistaken. At that time NZ was battling a bad current account deficit, much like today, and like today it was contending with a low commodity price outlook. In this context, one might expect the NZD to fall to 40c. The problem I have with this scenario is the weak outlook for the US economy. I am thinking we can expect a lot of monetary inflation in the US, but we might also expect some taxes on the rich and an energy tax. We need to remember that any slowdown is going to demand the government to raise taxes since Bush was engaged in tax reductions, now we are looking at tax increases.

The weak NZD is going to be a saviour for the NZ economy, and the prospect of NZ expatriates returning from abroad cashed up from offshore earnings is going to offer a stimulus of its own. I suspect a few Europeans and Americans might also be considering retirement in NZ, and some families will be changing their priorities, and deciding emigrating to NZ means more times for the kids. These are the dynamics which move a small nation like NZ. Falling NZ interest rates however suggest that we might just see the NZD move to 40c. As per normal, we should watch the market for some direction. Certainly the falls in equities are reason to think the NZD is not going to be a growth currency for some time. But perhaps you might consider buying property in NZ at this time. Economic malaise creates the best possible setting for contrarian investments. You can buy a house in NZ for as little as $NZ68,000 (USD35,000). This is a natural move for retirees, intellectuals, programmers and international explorers. In 5 years you will be able to sell any property investment at a higher exchange rate. More info here. Chart updates from Yahoo Finance.

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Andrew Sheldon www.sheldonthinks.com