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Co-ordinated Central Bank actions punches risk assets higher

Written by Sam Coxhead on December 1st, 2011.      0 comments

8:45 AM (NZT) The central banks of the US, Europe, Canada, UK, Japan and Switzerland extended the US dollar emergency bank funding lines, and halved their costs in a large move to stablise the banking sector globally. In the move they reduced the costs of US dollar funding from 100bpts over cash (OIS) to 50pts. Adding to the move was action from the Peoples Bank of China, easing the RRR by 50bpts, essentially making credit more freely available in China, a sure sign that the global slowdown is really starting to bite in the nation whose export sector is 45% of its economy.
The inaction from politicians in Europe remains of major concern, but at least the central banks are willing to do what they can to prevent further instability in global markets. This points further towards a larger role being played by the ECB in containing the debt issues in Europe.
The economic data added fuel to the knee jerk reaction from markets to the central bank action. Some positive news came from Germany and the US. After the Shanghai index closed was weaker by 3.3% before the central bank announcement, the European and US markets have soared on the news.
In the FX markets the NZD and AUD have been the main beneficiaries off the reaction. With the market having been significantly “sold” the growth currencies coming into this week, what has eventuated has been a classic “short squeeze”, as speculative investors all race to exit sold positions, accentuating the moves.
Ironically, these moves by the central banks illustrates how dire the financial situation has been, and the grave dangers still at play. The huge surge in risk appetite may prove to be short lived once the speculative positions are cleaned out, and the focus again turns to the fundamental problems.

    Last 24 hours trade
  Current level Low High
NZD/USD 0.7791 0.7578 0.7822
AUD/USD 1.0252 0.9944 1.0330
NZD/AUD 0.7600 0.7558 0.7623
AUD/NZD 1.3158 1.3118 1.3231
NZD/GBP 0.4965 0.7872 0.4965
NZD/EUR 0.5802 0.5710 0.5805
NZD/YEN 60.35 59.08 60.75
NZD/CAD 0.7942 0.7839 0.7957