Just as the Aussie Dollar rose without any obvious catalyst through the European and North American sessions overnight, so too did the New Zealand Dollar. It would be a pleasure to report some insight into this price action, some hitherto unnoticed piece of news, but sadly it is just one of those occasions when we have to note what happened without fully being able to explain why. If there was a large-scale re-allocation of investment flows or a significant corporate deal to be executed, the new era of regulation in wholesale foreign exchange markets simply forbids any discussion of it.
Indeed, it can frequently be the case that close colleagues on a major bank FX desk may have little or no knowledge of each other’s customer flows. There are obvious advantages in terms of client confidentiality, but it does mean that answering the question “why did the rate move?” is nowadays infinitely more difficult. If there are any Latin scholars amongst our readers, they may be familiar with the phrase “post hoc ergo propter hoc”. In plain English, this means “after this, therefore because of it” and it is a trap into which financial journalists often fall when attempting to ascribe causality when in fact it was just coincidence.
The honest truth is that sometimes we just don’t – and can’t – know what moved an exchange rate. Your author is never afraid to hold his hand up and admit this; hoping to be rewarded for honesty, if not for insight! What we do know is the price action: NZD/USD has virtually tracked AUD/NZD tick for tick and the cross rate at 1.1089 is less than 10 pips away from where it closed last night. Let’s hope the RBNZ meeting today brings more obvious catalysts for market movement.