FUTURES Good pickings in $US

Press, 12 October 1985, Page 23

FUTURES Good pickings in $US

The strengthening American dollar offers speculators chances to profit from straddle positions or day trading, says a Christchurch broker. Mr Geoff McDonnell, futures manager of Mair Astley, said yesterday that the down-swing in the. American dollar on foreign-exchange markets appeared likely to continue, encouraging the kiwi dollar to strengthen, which it continues to do with great momentum. The US. dollar futures contract was providing lucrative opportunities for traders opening straddle positions, or day trading, and at present was the contract giving the best returns over the shortest period on the Futures Exchange. "We recommend all futures traders to sell October, 1985, and buy November, 1985 dollar contracts at a 220-250 price differential, and close out later in the month when the differential should be 300 or more based on historical performance,” Mr McDonnell said. “We would look to the kiwi dollar maintaining its strength, the Government probably wanting to use the latest inflation statistics to reinforce offshore investors’ desire to invest in New Zealand Government stock.”

This, with the comment this week that petrol prices could Sagain provided evidence the Government would not intervene in the currency market and probably wanted to see the kiwi dollar go higher so that imported durables would become cheaper and help lower inflation. An exchange rate of RUSO.6OOO might be possible, Mr McDonnell said.

“With the futures price trend unchanged we favour selling U.S. and buying kiwi-going short on the futures market.

Dr Brent Layton, spokesperson for Marshall Futures, of Christchurch, said that after relative stability for four days U.S. dollar contract prices tumbled 500 points (*2500) yesterday when the kiwi surged to 59 lIS. cents because of a large buy order. Until Interest rates dropped an easing In the kiwi was unlikely, and the unit could go higher. “Those holding short positions should, however, watch out for a sharp reaction downwards.”

Mr Barry Knutson and Mr Guy Morgan, of Marac International Futures, Ltd, Auckland, said their prediction some weeks ago of a kiwi dollar worth 59 U.S. cents looked increasingly likely to be reached.

“Should it manage to breach 60c one has considerable trouble finding sensible resistance levels," they said. “We do not see any large fall from current levels as being especially likely. "Looking eight to 12 months out, we believe the kiwi and Aussie dollars will approach parity, and kiwi rising and the Aussie falling against the U.S.

dollar. “As long as NX interest rates remain so high and overseas interest in N.Z. securities firm, the kiwi will stay weU bid.” Mr Knutson and Mr Morgan said the U.S. dollar contract broke out of a small flag formation on the charts on Thursday in the direction of the general trend-down. PCPs Mr McDonnell, of Mair Astley, said of PCP (interest-rate) futures that this week's Treasury bill tender indicated lower rates before Christmas and high rates in the New Year, with the March, 1986 geld higher than the previous nder.

“This reinforces our strategy that the futures index quote of 7595 for March, 1986, is too low, with it anticipating 90 bills to be yielding 24.05 per cent in March,” Mr McDonnell said.

“We take the view that in March the 1984-85 terminal tax payments will be finalised, corporates using a depleted 1986 cash flow to do it Accord- » looking ahead we see liquidity in March, 1986, and would favour shorting the March delivery month at 76007570.”

Interest rates would probably remain high until the Government could substitute revenue from its stock tenders with revenue from the goods and services tax, Mr McDonnell said.

Dr Layton, of Marshall Fu&said prices eased on y, only to bounce back on Tuesday as profit-takers moved into the market. The down trend was resumed late in the week, however. “We recommend selling contracts for November and more distant months, as we do not believe the fall in interest rates current futures prices are picking will happen. We would close sold October, 1985, contracts at 7275 and below.”

Delivery for this contract occurs next Friday. Mr Knutson and Mr Morgan, of Marac International Futures, said the PCP, after trading without a clear direction for a week, and causing shorts some concern, had resumed its downward path. The October contract had tended to lead the November and December contracts down "but we believe it may be best for shorts to terminate half of

their shorts on any sudden spike down, as the correction which might reasonably be expected after the termination of the October contract should be quite a bit larger than the corrections that the PCP has experienced of late.” Wool The high kiwi dollar was taking its toll at auction, said Mr McDonnell, of Mair Astley. The Wool Board remained the largest buyer and at Dunedin Sesterday dropped its intervenon price on fine wool by 61.50 per kg and on half-bred by 50c per kg. Futures prices, while steady earlier in the week, started to ease yesterday, May, 1986, dropping to 508 c ana March, 1987, at 535 c, with buyers showing some reluctance to enter the market, Mr McDonnell said.

Futures prices appeared to be acting efficiently and pointing to true future auction prices based on yesterday’s strong currency, Mr McDonnell said. “In the short term we can see all delivery months easing another 5c to 10c.” Dr Layton, of Marshall’s, said that wool futures after holding relatively steady for most of the week especially for the more distant traded months, tumbled yesterday. The upward surge in the kiwi dollar and news that finer wools were appreciably cheaper at the Dunedin sale triggered the drop. "We still favour the short side in more distant months, but . would start by taking profits on shorts in nearer months at present price levels. “Farmers still have the opportunity to hedge their 198687 clip at reasonable prices, and we strongly recommend they do so. We would be happy selfing October, 1986, December, 1986, and January, 1987, down to as low as 510 c per kg given present available information about the likely demand and supply for NX Wool in the 1986-87 season.” International

Dr Layton said the Sydney share-price index continued its bull run this week, reaching new highs. The buying Interest generated by developments in relation to BHP and the general shortage of scrip were behind the sharp gains. “We recommend holding longs and buying On any drops.” Major currency futures had

a lack lustre week and Dr Layton recommends standing aside from these markets until the direction of the next major move of the U.S.-’ dollar becomes clear. i Mr Knutson and Mr Morgan, of Marac International said the market still saw a lot more upside potential to the Australian all-ordinaries contract, mainly because of the BHP affair and also the tax Implications of selling. "One should initiate longs on tests of support, but generally one has difficulty finding points at which to enter this market.

“The Aussie bill contract tilled a gap on the charts when It broke out of a flag formation. We believe this rally should be sold into, : but with close stops. “Gold and silver have not performed well on the back of the U.S. dollar weakening, tests of resistance should be sold into,” Mr Knutson and Mr Morgan said. i Details of yesterday’s trading on the market: ■

SUS CONTRACTS Mth Open 1.7395 H/L Last Vol Oct 7440/7230 7340 74 Nov. 1.7590 7650/7450 7620 39 Contracts traded: 113.; COMMERCIAL BILLS Mth Open 7285 H/L Last Vol Oct 285/275 282 94 Nov. 7395 397/386 388 27 Dec. 7583 583/565 566 48 Mar. 7590 590/575 585 16 Contracts traded: 185. WOOL FUTURES Mth Open 489 H/L Last Vol Jan. 489/488 488 7 Mar. 498 498/496 496 8 May 510 610/505 505 27 Aug. Oct 522 522/520 520 12 526 526/521 521 5 Dec. 527 527/522 522 4 Jan. 527 527/523 523 17 Mar. 535 535/530 530 14 Contracts traded: 94.

N2. FUTURES MARKET WEEK ENDED October 11 Trading Traded prices Total Open months This week To date this cont’s SUS High Low; Last High Low week Oct '85 1.7340 1.7795 1.7230 2.0000 1.7230 209 278 Nov ’85 1.7620 1.8100 1.7450 2.0080 1.7450 97 65 Dec ’85 1 2.5200 1.8250 11 Mar *86 1.8710 1.8710 1.8710 2.0510 1.8710 1 1 Jun *86 2.1005 2.1005 1 Sep *86 2.1890 2.1890 1 Totals 307 357 PCP ! Oct *85 7282 7325 1 7275 7800 7275 251 364 Nov *85 7388 7427! 7386 7719 7386 178 229 Dec *85 7566 7610' 7565 8084 7565 216 343 Mar *88 7585 7615 > 7575 7950 7575 69 114 Jun *86 7950 7950 1 7950 8015 7950 6 11 Sep *86 8000 8000 Dec *86 8000 8000 Totals 720 1061 WOOL Oct *85 474 474 ’ 473 556 468 7 6 Dec '85 485 488 : 485 560 473 6 172 Jan ’86 488 491 487 560 474 51 273 Mar *86 496 502 i 496 560 492 48 216 May '86 505 512 \ 502 565 502 90 377 Aug '86 520 529 ; 520 571 520 39 141 Oct ’86 521 529 ! 521 574 521 30 64 Dec '86 522 529 • 522 571 522 16 53 Jan ’87 523 529 ' 523 568 523 47 76 Mar ’87 530 538 i 530 548 530 37 118 Totals 371 1491 Tenderable stock; 2204 b ales. 35F2D quotes - 497 as at October 11.