FUTURES All eyes on the kiwi dollar

Press, 1 February 1986, Page 23

FUTURES All eyes on the kiwi dollar

Tile rebounding kiwi dollar and rising interest rates were the main forces in the futures market this week.

Dr Brent Layton, futures manager of John Marshall and Company, Ltd, recounted that the kiwi dollar firmed sharply on Monday from below 52 U.S. cents to above 53c, and futures prices tumbled roughly 500 points, or $2500 per contract Subsequently the kiwi had traded in the range of 52.50 c to 53.70 c and February futures had fluctuated between 1.1900 and 1.8785. Turnover was moderate.

"The kiwi is well supported at present levels, and is likely to remain so while interest rates hold at present high levels and the U.S. dollar continues to weaken against major currencies,” Dr Layton said.

Mr Geoff McDonnell, futures manager of Mair Astley, said the kiwi dollar showed little sign of weakening, with bullish fundamentals such as interest rates firming, and with inflows of capital into New Zealand from Euro-Kiwi draws-downs in February. “We would sit on short futures positions for a while yet. A hiccup could occur in the middle of next week if the U.S. dollar rises in response to what will have to be a very positive State of the Union address by President Reagan on Tuesday night because of the Shuttle disaster.” Yet again, overnight trading had been an important determinant of trading in the kiwi dollar, said Mr Barry Knutson and Mr Guy Morgan, of Marac International Futures, Auckland. “The U.S. dollar’s sharp fall last Friday (January 24), which was a long-awaited.technical breakout of a long-standing trading range and which found considerable follow through especially in the yen and Deutschmark, was a major factor. It prompted a gap down on the contract on Monday.”

The move was encouraged by the onset of the export season and good interest rates, but it stalled somewhat

early in the week on normal month-end importer buying, and overnight weakness, Mr Knutson and Mr Morgan said. The technical picture gave some clear signals: the double top on the contract which had failed technically only did so because of a flag formation, which itself was Indicative of further lows. After the break there was some hesitation. To date, the gaps left on the contract's descent remained unfilled. There was good support at 52.50. Resistance at 53.50 was smashed yesterday morning In London. “Our objective for the current move remains 55.50, after which we expect some consolidation. Upon a close above this, the near-term objective would be 57c,” Mr Knutson and Mr Morgan said. PCP contracts In the PCP (interest-rate) contracts, prices fluctuated for the nearer traded months of February and March between 7545 and , 7600 in the first four days of the week, but firmed sharply to close around 7650 on Friday. Dr Layton, of Marshalls, said the break-out on Friday was triggered by a drop in money-market term rates when the Reserve Bank, injected cash into the system. It did not appear to have been caused by the results of the special Government ' stock tender for SIOOM, announced at nobn.

The interest rate paid in

the tender was similar to what the market was expecting. i.- ■ .

The PCP futures market had been nervous this week with confusion prevalent, said Mr McDonnell, of Mair Astley. -

“It appears the PCP index will move in a 100 point range and traders would want to operate at the extremes of the range until the next major money-market catalyst (the settlement on February 12 of January, >' 1986, stock tenders) Occurs, to provide direction in the market.

The contract moved mostly sideways this week, consolidating after its recent correction, said Mr Knutson and Mr Morgan. t “We look to short near 7750, and though we believe rates will remain firm, one must be wary of the. possibility of there developing a true 50 per cent Correction to the contract’s recent decline. The objective for shorts should only be . 7500, but on a close below 7500 shorts could be reintroduced, albeit with close stops.” Wool P Mr McDonnell, of Mair Astley, said auctions remained strong in, U.S. dollar terms this week though the kiwi dollar was showing signs of strengthening; Trade houses were showing signs of ■ bullishness, and in the short term it appeared that futures prices would remain steady.

“However, if the kiwi dollar shows signs of strengthening and heading towards ah exchange rate of 55 U.S. cents then it may’be prudent to take profits on lotigs and open shorts.” . Dr; Layton, of Marshall's, said the wool-futures market was quiet throughout the week and prices did not move appreciably, despite a Sharp drop in auction prices for futures type wool at this week’s sales and the firmness bfj the kiwi dollar.

The market failed to respond to these two influences because of strong buying from traders keen to cover forward woolsale .commitments against the possibility that prices could rise r, sharply later in the season when the offering at auction diminished. ■ JUr Knutson and Mr Morgan; of Marac International, said they viewed strength in the rwool market as presenting a selling opportunity, especially if there was further firming in the kiwi dollar. International ; The Australian dollar contract continued its downward flight this week after its recent break from a long-term triangle, said Mr Knutson and Mr Morgan,-of Marac International “On any sudden : spike down consider liquidating shorts, or use a close trailing stop. - “We are awaiting a break on the Australian bills con- ■ tract which Is currently trading within a triangle whose boundaries date back to July, 1985. There Is a lot more

topside potential than down and market sentiment certainly anticipates a rally short and longer term. We would prefer to wait for the break and then jump in." The. Australian allordinaries share index rallies sharply this week hitting new contract highs . but pulling back on Thursday when it met a previous support line dating back to midDecember. “This contract seems determined to hit 1100 points ; sooner rather than later,” Mr Knutson and Mr Morgan said. Details of yesterday’s trading in New Zealand: SUS CONTRACTS Mth Open H/L Last Vol Feb 1.8860 .8865/8785 .8865 45 Mar 1.8924 .8924/8800 .8724 8 Jun 1.9350 .9350/9350 .9350 4 Sep 2.0000 .0000/0000 .0000 5 Dec 2.0515 .0815/0215 .0215 10 Contracts traded: 72. Open positions at January 30: Feb 218, Mar 5, Jun 1, Sep 1, total 225 (down 261).

Open positions at January 30: Feb 365, Mar 1078, Apr 270, Jun 120, Sep 72, Dec 17, total 1922 (up 36).

Contracts traded: 6. Open positions at January 30: Mar 191, May 377, Aug 203, Oct 224, Dec 235, Jan 217, Mar 308, May 194, total 1949 (down 20).

N.Z. FUTURES MARKET WEEK ENDED January 31 Trading b Traded prices Total Open months This week To date this cont’s JUS High Low Last High Low , week Jan '86 1.9100 1.8700 1.8760 2.09251.7400 115 0 Feb ’86 1.9530 1.8785 1.8865 2.07801.8125 i 216 218 Mar ’86 1.9150 1.8800 1.8924 2.05101.8315 20 5 Apr '86 —- 1.96501.9650 —- —- Jun ’86 1.9350 1.9350 1.9350 2.10051.9350 ■ 4 1 Sep ’86 2.0000 2.0000 2.0000 2.18902.0000 5 1 Dec ’86 2.0815 2.0215 2.0215 2.08152.0215 10 — Totals 370 225. PCP 365 Feb ’86 7670 7555 7650 8143 7485 ’ 392 Mar ’86 7655 7545 7655 8120 7490 • 422 1078 Apr ’86 7740 7675 7740 7790 7630 ; 166 270 Jun ’86 7880 7875 7880 8225 7800 16 120 Sep *86 — <8219 7890 — 72 Dec ’86 — —— 8299 8100 —— 17 Totals 996 1922 WOOL Jan ’86 500 500 500 560 440 1 16 Mar ’86 — 565 450 — 191 May '86 507 505 507 571 456 . 10 377 Aug '86 525 521 521 576 474 15 203 Oct ’86 524 522 522 571 474 12 224 Dec ’86 525 • 522 522 571 475 18 235 Jan *87 525 522 522 568 474 I 25 217 Mar ’87 530 527 529 555 480 34 308 May ’87 537 533 533 562 486 18 194 Totals 133 1965 Tenderable stock: 468 bales. 35F2D quotes — 492 at Christchurch yesterday.

COMMERCIAL BILLS Mtn Open H/L Last Vol Feb 7575 650/575 650 84 Mar 7575 , 655/571 655 140 Apr 7690 740/690 740 41 Contracts traded: 265

WOOL FUTURES Mth Open H/L Last Vol May 507 507/507 507 1 Aug 521 521/521 521 1 Oct —— — 522 1 Dec 522 522/522 522 1 Jan 522 522/522 522 1 Mar 529 529/529 529 1