FUTURES '$NZ outlook less bullish’

Press, 31 August 1985, Page 25

FUTURES '$NZ outlook less bullish’

After a week of unusual steadiness at the low-to-mid 53c level, the kiwi dollar surged upwards yesterday morning to touch 54.4 U.S. cents only to tumble shortly afterwards to 53.4 U.S. cents. The kiwi eventually stabilised around 53.75 c.

marker roared into life, causing a 1c strengthening in the kiwi dollar, futures reacting in parallel and moving through a 500 point range. On the foreign-exchange market the cost of forward cover has increased reflecting tight liquidity in N.Z. “With several more EuroKiwi draw-downs to come the kiwi looks like maintaining its strength, but we feel that in late September these catalysts may cause a reaction: The slowing of Euro-kiwi drawdowns; the cost of forward cover reducing; and an improvement in liquidity. “We would be sellers of the kiwi around 55.00.” Mr Barry Knutson, of Marac Challenge Futures, Ltd, Auckland, said that despite bearish sentiment early in the week the kiwi showed signs of strength mid-week in failing to make a decisive break of support at 53c. “We believe a test of its upside potential is imminent. Our goal is presently 59c and we anticipate it will reach 56c very quickly. There are still some corporates who have been holding money offshore since devaluation in anticipation of the kiwi falling, and with the kiwi having recently failed to make a decisive break, they must be reconsidering their positions. “In addition, the Europeans bid it up again on Thursday night.” Support is still being found from high domestic interest rates which on overnight money are close to 40 per cent. “Current levels on the United States dollar contract provide a good shorting opportunity.” PCP futures The sharp downtrend in in-terest-rate (PCP) futures prices continued throughout the week as interest rates continued to firm in the money market, said Dr Layton, of Marshall’s. Some trading banks were keen during the week to acquire cash, in advance of September’s tax payments and this compounded with end of months flows out of this system to push up rates. “Late on Friday signs that interest rates were starting to peak emerged. We recommend starting to take profits on shorts,” Dr Layton said. Mr McDonnell, of Mairs,

Futures prices reacted to Friday morning's fluctuations in the kiwi, said Dr Brent Layton, of Marshall Futures. The market opened 300 to 400 points lower than Thursday's close, but bounced 300 to 400 points, settling at the end of the morning session 100 points below Thursday’s close. “While at present the kiwi is being underpinned by high interest rates the medium-term outlook is less bullish for the unit than it was a couple of weeks back,” Dr Layton said. Mr Geoff McDonnell, of Mair and Company. Ltd. said that after being in a downtrend for six months the U.S. dollar was showing signs of stabilising, but could require some significant factors to break it out of its 2.74 to 2.79 Deutschmark range.

“Such consolidation could be the start of a gradual up trend.”

This week trading on the N.Z. foreign-exchange market was subdued, some dealers engaging in a certain amount of soul searching. Futures were quiet until yesterday when the foreign-exchange

said rates on the money market rose this week with the overnight call rate on Friday reaching 40 per cent. “With a Treasury bill tender during the week and the tax draw-off next week it appears that the Government tight monetary policies are being maintained.” The futures index has kept moving down reflecting a change in 90 day bill yields of 2 per cent during August. This may be short term and we hold the view that yields on bills will reduce.” Mair Futures would favour going long on the futures index, Mr McDonnell said. Mr Knutson, of Marac, said that despite heavy bidding at the Treasury-bill tender, interest rates on long term Tbills eased only slightly. “After some three weeks playing the range between 7400 and 7500, the September PCP contract broke out of its range on Monday and on Wednesday closed back inside the steep downtrend line that we followed on the way down. “We anticipate that this contract will continue to make new lows over the next week and recommend that any strength should be sold into. The December PCP contract is lagging behind somewhat and has more downside potential. Accordingly the second contracts currently provide a good opportunity to straddle.” Wool futures Wool futures had a dull week of trading, with lacklustre trading attributable to European buyers being on holiday, said Mr McDonnell, of Mair’s. Futures prices had risen 4 to 5c above their lows. This was because of the U.S.kiwi exchange rate’s weakening 2.5 c from its high of 5600. “We hold view that new shorts should be opened on any upwards surge in the index. In the meantime, there is some conjecture that trade houses will not be aggressive at auction until the kiwi-U.S. exchange rate is around 50005100. Accordingly it looks as if the Wool Board will continue to prop up the auctions and their support level of medium crossbred wool should be noted by futures traders. The wool-futures market was quiet all week — most traders were happy to sit on their positions — and the absence of a sale meant there

was little new information to affect the market, said Dr Layton, of Marshall’s. Currency factors continued to dominate futures prices, but it would take a substantial fall in the kiwi to lift futures prices by any extent more than temporarily. International U.S. Treasury bonds should soon test resistance about 77.16 basis Dec, retreat to 76.00 and then rally to new highs, said Mr Guy Morgan, of Marac Challenge Futures. "South Africa currently dominates the precious-meta’l markets. Gold and silver continue in their consolidation pattern with choppy trading and very little follow through. Play the range, with an emphasis on going short at resis-

WOOL FUTURES MARKET WEEK ENDED August 30 Trading Traded prices Total Open months This week To date this cont’s Wool High Low Last High Low week August 29

Tenderable stock: 2184 bales. 35F2D quotes — 503 as at August

tance levels. JUS CONTRACTS Mth Open H/L Last Vol Sep 1.8750 9100'8655 8750 71 Oct 1 9000 9360/9000 9105 14 Nov 1.9585 9585/9400 9400 3 Contracts traded: 88. WOOL FUTURES Mth Open H/L Last Vol Oct 501 502.499 499 6 Jan 507 507/507 507 7 Mar 516 517/516 516 12 May 522 522/521 521 8 Aug 537 537/537 537 1 Contracts traded: 34. COMMERCIAL BILLS Mth Open H/L Last Vol Sep 7350 350,-300 340 54 Oct 7485 525/475 522 56 Nov 7600 645,600 645 13 Dec 7750 799,750 780 19 Sep 8000 8000 8000 8000 5 Contracts traded: 147.

Aug '85 — — — 544 448 nil nil Oct '85 503 499 499 556 472 44 230 Dec '85 507 503 507 560 473 29 222 Jan '86 508 504 507 560 474 23 316 Mar '86 519 514 516 560 492 29 209 May '86 522 521 521 565 517 18 282 Aug '86 538 537 537 571 532 11 132 Oct ’86 — — — 574 534 nil 35 Dec ’86 540 540 540 571 533 1 49 Jan ’87 537 537 537 568 535 1 47 Totals 156 1522