Collinson FX Market Commentary: January 7, 2014 - Kiwi starts strong

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Collinson FX market Commentary: December 20, 2013

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Bernanke is on his bike and he is to be replaced by his vice-President, Yellen. Yellen is a dove and advocate of expansive monetary policy, which has dominated the socialist lead Obama regime. The complete fiscal ineptitude has virtually forced the expansive monetary policy.

By running deficits, the left consider, printing more money essential. The sheer ignorance of the socialist ideology astounds, as the belief that there will be no repercussions of printing more money, beggars belief. Political leaders have iterated the theory, that running deficits can be accommodated by expanding the money supply,must be considered verging on insane. The Feds balance sheet is now triple what it was pre-GFC! The goal is growth and ignore the long term consequences. Europe has adopted the same theories, extolled, by the very person assuming the role of Federal Reserve Chairman.

Tapering is a step in the right direction, but it is just a reduction in the expansion of the money supply! The obvious impact of printing money is the reduction in purchasing power and wealth. This is what the populus has been suffering, with real income falling aver the last six years, across the Western World. The Fed has undermined the Dollar, which has fallen to 1.3650 against the EURO and 1.6400 v the GBP.

A reduction in the expansionist policy should have a positive effect on the value of the USD over the next year and ultimately impact the commodity associated currencies. The AUD has fallen from heady highs, to trade just below 0.9000, but should experience further downside tests.

The KIWI has been resilient as the economy slowly recovers under the stewardship of a conservative Government. This could all be unravelled with election later in the year. Nine years of left-wing socialism, rainbow politics and associated economic policies, all but destroyed the economy and much work remains. The KIWI has began the year strongly, trading just under 0.8300, but will be under pressure from a recovering reserve currency.

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