FUTURES Kiwi churns market

Press, 14 December 1985, Page 23

FUTURES Kiwi churns market

The tumble of the New Zealand dollar put life into the New Zealand futures market this week. Futures thrive on volatility.

The market roared up on Wednesday and Thursday when the kiwi dollar tumbled from 56.3 U.S. cents to 52.5, said Dr Brent Layton, of Marshall Futures, Christchurch. Turnover was relatively high as shorts scrambled for cover and the bears on the kiwi raced to open positions as futures prices rose. “The reduction in New Zealand interest rates' relative to those overseas eventually undermined the currency, the exporters who had been keen to buy the unit eventually backed off, and when it fell through chartist support points, the kiwi tumbled. “We see the kiwi as still having downside potential, because of the decline in relative interest rates in New Zealand, in spite of the fact that there are signs of renewed interest in borrowing offshore in some quarters, and this being the export season.” Mr Geoff McDonnell, futures manager at Mair Astley, Ltd, Christchurch said: “With negative momentum gaining for the kiwi we would favour the long side of the futures market.” Mr George Price, futures broker for Egden Wignail, said that from a technical point of view, the U.S. dollar contract was set to trade higher on Monday because the December and January contracts closed on their highest and best levels on good volume, reflecting a strong market, “chart-wise.” The market broke out from a beautiful reverse head and shoulders on Wednesday, and it gave a minimum chart count of 1.9150.

(This means the chart pre-

dieted a contract index of 1.9150, or 52.22 U.S. cents.) PCP contracts The PCP (interest rates) index moved up this week as participants anticipated lower yields in the Government stock tender, said Mr McDonnell, of Mair Astley. “However the cash rate for 90-day money was 19 per cent yesterday, while the futures index was anticipating cash rates in January, February, and March of 18.8 per cent during traditional times of tight liquidity. “It should be realised that futures markets can over-an-ticipate and exaggerate, especially during this traditional period of easy liquidity at Christmas.”

In the New Year these factors could possibly firm up interest rates, Mr McDonnell said:

® Stock tenders in January and February which could puu J6OOM out of the system. ® Lower retail turnover.

® Effects on working capital of the latest wage round. ® Seasonal tightening in liquidity as the tax draw-off in March approaches. “We would favour shortening the PCP contract with a closeout target of March, about 7600 to 7624,” Mr McDonnell said.

Dr Layton, of Marshall’s, said prices had been relatively static over the week, having surged strongly late last week. In spite of only limited price movements the volume of turnover had been high, records being set on Monday and Wednesday. “Interest rates for term paper have fluctuated around the 19 per cent level, and in consequence nearer-month PCP’s have fluctuated around 8100. We, however, expect that rates wiill drop again because of reduced demand for credit as the economy slows down and a fall in the anticipated inflation rate.

“The low rates in this week’s Government stock tender and the reduction in kiwi bond rates we see as providing the » er to bring about another downwards in rates. We therefore favour the long side of the PCP market,” Dr Layton said. Wool futures

Futures prices and auction prices have soared this week as the kiwi dollar tumbled. Prices rose about 20c on Thursday and Friday. "Most of the buying in futures has beeen short covering, and some of the enthusiasm at

auction was also sparked by exporters needing to purchase to fulfil forward sale commitments,” said Dr Layton. Those long should start to take profits at present levels as futures are still a long way. above physicals. Those short, and with the resources to weather any storm if the kiwi falls very sharply in the near term, should hang on, as ultimately futures and physicals must come together, and it is difficult to believe physical prices will rise as much as futures currently predict

“Those short lacking resources have little choice but to cover, and take their losses on the nose,” Dr Layton said. Mr McDonnell, of Mair Astley, said futures prices had continued their rise in response to a weakening of the N.Z. currency. Export houses appeared to be more optimistic at these levels about completing export orders, as had been evidenced by the strengthening of auction prices. “However, we would expect to see futures prices peak around yesterday’s levels,” said Mr McDonnell.

Now was the time for growers to hedge their wool clips against any fall in value between now and next season, he said.

“The recent rise in futures prices has been too dramatic, and sooner or later we would expect a correction. We favour

the short side of the futures market” Wool sale quotes: Wellington, December 9. — Gsy 327, Clean 440, 35F2D 459. Napier, December 12. — Gsy 335, Clean 450, 35F2D 471. Details of trading yesterday on the Futures Exchange: SUS CONTRACTS Mth Open H/L Last Vol Dec 1.8930 9105/8845 9105 34 Jan 1.9201 9250/9070 9250 57 Contracts traded: 91 Open position as at December 12: Dec 203, Jan 128, Feb 3, Mar 1, Jun 1, Sep 1, total 337 (up 29).

Open position as at December 12: Dec 119, Jan 460, Feb 321, Mar 669, Jun 87, Sep 65, Dec 36, Mar 0, Jun 0, Sep 0, total 1757 (up 46). WOOL FUTURES

Contracts traded: 144 Open position as at December 12: Dec 0, Jan 142, Mar 207, May 378, Aug 221, Oct 176, Dec 178, Jan 165, Mar 246, May 110, total 1823 (up 50).

COMMERCIAL BILLS Mth Open 8081 H/L Last Vol Jan 125/081 125 88 Feb 8075 125/075 120 67 Mar 8080 108/080 100 78 Jun 8200 200/150 150 14 Sep Co: 8170 170/170 170 5 □tracts traded: 252

Mth Open H/L Last Vol Jan 484 485/484 485 4 Mar 502 508/502 508 13 May 516 520/516 517 12 Aug 523 537/523 534 31 Oct 527 535/527 534 22 Dec 527 537/527 534 36 Jan 528 537/528 537 18 Mar 535 535/534 534 8

N.Z. FUTURES MARKET WEEK ENDED December 13 Trading Traded prices Total Open months This week To date this cont’s $US High Low Last High Low week Dec ’85 1.9105 1.7800 1.9105 2.5200 1.7450 226 203 Jan ’86 1.92501.79553 1.9250 1.9250 1.7400 188 128 Feb ’86 3 Mar ’86 1 Jun ’86 1 Sep ’86 1 Totals 414 337 PCP Dec ’85 8135 8060 8090 8135 7480 369 119 Jan ’86 8140 8060 8125 8140 7425 413 460 Feb ’86 8143 8055 8120 8143 7750 334 321 Mar ’86 8120 8020 8100 8120 7490 421 669 Jun ’86 8225 8100 8150 8225 7800 51 87 Sep ’86 8219 8110 8170 8219 7890 34 65 Dec ’86 8299 8250 8250 8299 8100 12 36 Totals 1634 1757 WOOL Dec ’85 560 443 40 50 Jan ’86 485 470 485 560 440 40 142 Mar ’86 508 485 508 565 450 30 207 May ’86 520 490 517 571 456 80 378 Aug ’86 537 504 534 576 474 109 221 Oct ’86 535 510 534 571 474 78 176 Dec ’86 537 509 534 571 475 114 178 Jan ’87 537 509 537 568 474 86 165 Mar '87 535 514 534 548 480 72 246 May ’87 540 519 540 540 486 52 110 Totals 661 1873 Tenderable stock: 1173 bales. 35F2D quotes - 483 as at December 13.