Forex Flash: Risk appetite soars in 2013 helping fortify NZD – BNZ (Barcelona) - Financial market sentiment started 2013 in a heightened state as ongoing evidence of global economic 
repair and a marked improvement in European financial conditions combined to rejuvenate investors’ appetite for ‘risky’ assets. The VIX index (a proxy for risk aversion) fell to the lowest level since 2007 and global stock markets soared. The MSCI World Equity Index climbed 5.0% through the month, to be up 12% from the November 2011 lows.

January’s global equity market gains were also a reflection of what is shaping up as one of the bigger macro themes to watch in 2013; the so-called “great rotation” of investment cash out of the relative ‘safe-haven’ of bonds into more ‘growth-sensitive’ assets like stocks. There was certainly evidence
of this in January’s bond market action. US 10-year Treasury yields rocketed some 23bps higher.

The gains in US yields may have also been a reflection of speculation the US Federal Reserve could call off its quantitative easing (QE) program as early as late 2013. However, the Fed’s recommitment to its QE policies later in the month soon cleared up any doubt on this front. “This all has had the impact of bolstering and fortifying the NZD/USD. Given the nature for risk appetite currently, any dips below the 0.8200 handle would be short-lived while the global economic recovery remains on track and the domestic economy continues to outperform.” notes the BNZ Research Team.

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