Forex Flash: Alleviating global fears could bolster NZD – BNZ

FXstreet.com (Barcelona) - The NZDUSD has traded with a modest upward bias over the past six weeks or so that has very much kept in line with forecasts. "Of course, there has been plenty of news and events for the currency to absorb, particularly over the past week. However, investors haven't seen anything to change the big picture view for an optimistic NZD." Writes Mike Jones, an analyst at BNZ.

Yes, the Bank of England, the ECB, and US Fed disappointed a market looking for instant gratification given there were no announcements of new policy easing measures. "However, we suspect that, in time, all three will act to soothe worries of global collapse and prevent European debt contagion." he writes. Indeed, the ECB and Fed all but put the market on notice for additional policy action, unless the data tone suddenly takes a turn for the better.

"We expect the US Fed to enact further stimulus measures in September." Jones predicts. The ECB, having set out the design of its bond buying/LTRO Bazooka, is expected to use it sooner or later. The 'sooner' option would be the more likely one should European debt market conditions continue to deteriorate. Italian and Spanish sovereign bond yields remain the key metrics to watch in this regard. Recent signs of a possible bottoming in Chinese economic activity should also help soothe global growth fears.