Euro wobbles only a bit on Catalonia
By Peter Rosenstreich
EUR/USD dropped to 1.1770 before rallying right back – Catalonia has investors worried, but not panicked. Despite the province’s political crisis, markets expect that Spain and the European Union will prevail. Faith in a dominant federal system has limited political-risk spillover into exchange rates, yields or volatility. Although all eyes are on Catalonia to make the next move, we remain sceptical that the Euro will dive significantly.
Spain’s central government has not changed its position. It sees Catalonia’s independence claims as unconstitutional, and has warned that it could take over direct administration of the renegade province.
New Zealand dollar to keep falling
By Arnaud Masset
As a new left-leaning government is poised to take office, the New Zealand dollar took a hit on Thursday, falling more than 1.70% against the US dollar. The Labour Party is about to form a coalition government. Winston Peter, leader of NZ First, announced his party will now back the Labour Party rather than the National Party. Jacinda Ardern, leader of the Labour Party, is taking over William English’s seat as New Zealand’s Prime Minister. Winston Peters will most likely become Deputy Prime Minister.
The market expects this constellation to bring expansionist policies, such as an increase in living allowances and free tertiary education, which will lead to an increase in spending. There is plenty of room for further Kiwi depreciation, as speculators have built massive long position over the past months. Already they started to unwind their bullish bets in August, as they felt the wind was shifting. As of last week, net long non-commercial future positions accounted for roughly 15.7 % of total open interest, compared to over 63% in July. The Kiwi has broken all its supports and the road is now wide open towards $0.6818 – its low of 11 May.