Intra-day the Kiwi has reached a multi-week high against the Yen. This came on the back of an increase in the price of milk. Milk products account for some 20% of New Zealand’s export earnings.
We think that the breakout in the Kiwi Yen is very important because it highlights a continuation of the:
- high yield trade;
- demand for commodity currencies;
- inflation premium in bonds…..which should be followed by higher commodity prices.
Now all we need is a confirmation of the breakout in the Kiwi/Yen by the Aussie/Yen and Brazilian Real/Yen. We think that this confirmation will happen over the coming days.
Notice how the Aussie Yen has gone nowhere since mid June……and also notice how the high in June corresponded with the high in West Texas Crude in June. Since mid June the Aussie Yen made another multi-week high but crude and the CRB struggled to do so. Of course this is stating the rather obvious. Perhaps what is not so obvious is that the commodity currency yen crosses have been a leading indicator for the behavior of crude and by default the broad commodity group since late last year.
The key levels to watch for now are:
- AUD Yen – 82.0
- Crude – $75
- CRB – 270
These levels should be broken in consecutive fashion over the coming days. Breaches of these levels will have disastrous consequences for those banging on about deflation!
You may be wondering about the significance of milk! Just go into a supermarket and try to come out with a product containing an ingredient that is not a derivative of milk………even your daily glass of wine has a preservative which is a derivative of milk! It is kind of strange to think that wine growers in California and New Zealand Dairy farmers have a lot in common. Yes everything in this world is connected in more ways than you know! Beware of the consequences of rising payouts for Kiwi “cow cockys”!
