FUTURES ‘Kiwi’ holding own

Press, 1 June 1985, Page 23

FUTURES ‘Kiwi’ holding own

Futures brokers are still watching for any breach in the New Zealand dollar’s line against the strong United States dollar. At least one broker put his neck on the block during the week with a brave prediction of an imminent fall but this has not occurred. Mr David Halligan, of Jordan Sandman Futures, Auckland, said yesterday that the “kiwi” dollar traded most of this week below the key 45c level in a continuation of its recent trend to weaken gradually. Good producer board support was ended at the 44.7 c level, and this week dollar futures had shown little in-

clination to rise, despite signs of strength in the United States dollar overseas.

Nonetheless, there was more downside potential in the “kiwi” than upside so futures should still be looked upon from a buying point of view; the question was one of timing rather than direction. Dr Brent Layton, of Marshall Futures, Christchurch, said prices showed no clear trend over the week. The June, 1985, contract fluctuated around 2.2600. The stability of futures reflected little movement in the “kiwi” dollar on international currency markets. “We do not favour short dollar futures positions overnight, and recommend opening long positions on any firming in the ‘kiwi’ dollar to over 45.15 cents,” Dr Layton said. Mr Geoff McDonnell, futures manager of Mair and Company, Ltd, Christchurch, said the closing of foreign-exchange markets in Europe and America for holidays caused quiet trading early in the week. “Once again international currency traders say they are looking for direction, but they are focusing on stronger second-quarter growth in the United States, and consequently are inclined to buy the United States dollar, which has good support at 3.05 Deutschmarks." The “kiwi” weakened again against the United States currency. The foreign-exchange Srt level of 4500 had been n and the "kiwi” was showing reluctance to move above it. “We could see the foreignexchange spot rate at the end of June testing 4400, which would make June futures at Friday’s level of 2.2600 reasonable buying. It may appear that the ‘forex’ range could range from 4400-4490 over the next two weeks.” PCP contracts Dr Layton, of Marshall Futures, said prices for the middle traded months in the prime commercial paper (commercial bills) contracts tended to rise during the week, making gains of 50 to 60 points. Prices for the nearest traded month, July, rose on Tuesday 25 points, but then stabilised. The price for the December, 1985, contract drifted down until Friday, when it rose sharply by 40 points. Turnover was modest on most days, but on Wednesday peaked at 62 lots on position taking by financial institutions. Mr McDonald, of Mair’s, said PCP prices in the near months remained firm, reflecting opinion of a slight reduction in interest rates as a result of comments by the

Minister of Finance, Mr Douglas.

Corporates were showing interest in this contract, which enabled them to take advantage of interest-rate swap facilities.

“This is where a corporate with a major interest-rate exposure and obliged to use floating-rate facilities such as a series of commercial bills over 12 months can now take advantage of a fixed-rate facility offered by some merchant banks, who, in turn having taken over the corporates’ risk, hedge the exposure on the futures market by setting up a commercial-bill strip.” A strip entails taking com-mercial-nill futures contracts over successive periods to coincide with the roll-over of the “physical” commercial bills. A hedging position is, of course, taken. This facility was enacted on the PCP contract this week by several brokers, “If overseas trends are anything to go by this PCP contract stands to gain immensely as commerce starts to organise swap facilities,” Mr McDonnell said. Mr Halligan, of Jordan Sandman, said the PCP contract was trading quietly but consistently and should develop as an integral part of the futures market in New Zealand over the next few months. Wool Low volume in the wool contracts traded this week again pointed to lack of a fundamental catalyst to move prices either way, said Mr McDonnell, at Mair’s. The deliverable stock future increased 350 bales, giving rise to a feeling that the chance of pressure on August auctions may not be all that great. “On the other hand, with the New Zealand dollar depreciating against the United States dollar and looking as if it may continue to do so over the next two months, futures prices may be reasonably priced if compared with the current auction price of 527 cents for 35F2D type wool (mediumcrossbred Romney)," Mr McDonnell said. Dr Layton, of Marshall’s, said that wool-futures inquiry at present indicates the possibility of a firm start to the new season. “We recommend those holding shorts to close, and start to open long positions. Australian prices were up again this week, reaching the previous seasonal peak.” SUS CONTRACT 85 Open H/L Last Vol June 2.2600 .2623/600 .2600 27 July — — .2980 1 Contracts traded: 28. COMMERCIAL BILLS 85 Open H/L Last Vol July 7555 7557/555 7555 10 Aug. 7540 7550/540 7550 7 Sep. 7550 7550/546 7549 14 Contracts traded: 31.

Totals 80 2206 Tenderable stock: 1217 bales. 35F2D quotes — 527 as at May

WOOL FUTURES MARKET WEEK ENDED MAY 31 Trading months Traded prices This week To date Total this Open cont’s Wool High Low Last High Low week May 31 may ’85 515 512 515 544 445 7 26 Aug ’85 533 532 533 556 472 24 513 Oct ’85 ’85 535 533 535 560 473 4 363 Dec 534 533 534 560 474 9 298 Jan ’86 536 535 536 560 492 20 383 Mar ’86 544 544 544 565 543 8 231 May ’86 551 550 551 571 549 6 234 Aug ’86 565 565 565 574 549 2 147 Oct ’86 — — — 570 566 — 11