Calendar Week 14 – 2022

 

Last week was a consolidation of prices as we thought. Although stock markets are ignoring the bond market as it continues to strengthen. The US bond market is inverted and whilst pricing in another 9 hikes (+2.25%) this year, it is also pricing in 4 rate cuts (1%) next year. Perhaps this is what the stock buyers are looking at, the prospect of QE5 next year and all the cheap money it brings.

 

Gold Standard for Russia

 

We are still monitoring the Russian situation closely. This week, ignored by most media outlets, we note that the Russian are moving to a gold standard. See here. This will have a profound effect on the global monetary system and the US$ dominance. It could potentially end the era of fiat currencies too. Combine that with the rise of blockchain and the landscape could be very different in 10 years time. We may not have an FX market to trade as we do now.

 

Commodities

 

Other things to watch is in China as it battles food shortages and COVID lockdowns. For Australia, the reliance on China’s thirst for iron ore and coal might slow down as it directs funds to support their citizens’ more daily and direct needs. The industrialisation and building of China will continue, but for short term maybe not so much. Iron or prices have not reflected that yet, closing higher at $159, up from $90 5 months ago but well shy of $220 it was mid last year. Coal on the other hand has fallen dramatically from $440 to $265 over 4 weeks, but well up from the $120 it was at the beginning of the year. Meanwhile soft commodities are all holding onto most of their gains they have made this year. Luckily for Australia, we just signed a mammoth deal with India, the country that will soon be the largest population in the world.

 

Currency Guidance

 

For FX. The commodity currencies of AUD, CAD and NZD along with the JPY are all overextended and due a retracement to the average. The spend the week consolidating at the extension but this week might see that pullback we are looking for.

The Aussie I would like to see it back to 0.74 cents where I would look to be a buyer again.

The Loonie, having found support at 1.2450 I would look to be a seller circa 1.2650.

The Kiwi I would like to be a buyer in the 0.6850 region.

For the Yen, it has a long way to come and its volatility is daunting to look at. For the USDJPY look to be a buyer in the mid 118’s.

The Euro I am happy to be a seller here at 1.10 down to 1.05 whilst the Cable, also am happy to be short here down to the 1.28’s.