By Roger J Kerr
As expected, the NZD/USD exchange rate was volatile last week with the strong GDP growth numbers on Thursday pulling the Kiwi dollar upwards again from its key support level around 0.8200.
Recoveries in the AUD and EUR against the USD over recent days have helped that recovery.
The Kiwi may have also gained some support as a safe haven place to go with the uncertainties surrounding Cyprus in Europe and the potential precedents and knock-on contagion implications for the rest of Europe.
We await news this morning as to whether the Russian depositors are going to bail out the Cypriot banks.
My reading of the historical December quarter’s GDP result was that the newswire’s headlines of a 1.5% increase against prior forecasts of 0.8% was always going to cause short-term NZ dollar buying.
However, the reality of the drought on our economic growth this year would not see that Kiwi buying be too long lasting.
Therefore, the move back above 0.8300 appears temporary and thus a good opportunity for USD importers to ensure they are at their desired forward hedging levels for USD payments over the rest of 2013. Overseas trade import/export figures on Tuesday for the month of February will be a reminder to the FX markets that the high NZD value is hurting our export sector in terms of competitiveness and thus export volumes.
A monthly trade deficit well above $300 million is expected which will further increase the overall annual trade deficit.
We still see stronger US economic data over coming week/months being interpreted by the global currency markets as being positive for the USD against the major currencies.
If the Cypriot Government cannot get a deal today/tomorrow to save their banks, the Euro will weaken back to the $1.2800 level against the USD and thus drag the Kiwi down with it.
Despite the now more subdued economic outlook for New Zealand this year due to the drought, our economy and currency is still regarded by international investment funds as a relative secure and safe place to have their money away from the uncertainties in Europe.
One of the largest US funds, PIMCO have confirmed that they have increased their asset allocation to NZ Government Bonds over recent years by US$3 billion and they remain keen to allocate more our way.
While a stronger USD does suggest that the Kiwi may trade marginally below 0.8000 for a period this year, our still superior relative performance to most other OECD economies is well recognised around the world and underpins the NZD currency value. It would seem that only a dramatic collapse of wholemilk powder prices could cause independent NZ dollar weakness into the low 0.7000’s.
Looking at the global demand and supply situation over coming years for quality export milk powder products that scenario seems totally unlikely.
------------------------------------------------------------------------------------------------------------------------------
To subscribe to our daily Currency Rate Sheet email, enter your email address here.
------------------------------------------------------------------------------------------------------------------------------
Roger J Kerr is a partner at PwC. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com
20 Comments
Why are you the boringly persistant, repetative, one man band contributions trying to talk down the value of the kiwi ?
Lots of overseas investments to bring home ? or a warehouse of product that no-one will buy unless it's cheaper than asia can make it?
All of what I read suggests that the kiwi will be at this level, or higher , versus the US$ for at least another year.( Excluding a major world event)
Not that I hold views consistent with those epoused by the author you rail against, but investors face volatile times and the nations that best represent safety may take precedence over overt currency devaluation tactics being enacted by them. Read article
Still waiting for the big pullback.
yeah aren't we all Mark, well maybe not the Red Shed...and bond n bond...ooops!
Ironic that aint it , the Red Shed.
Um, it was bizzare the first time, why say it again.
.....what..? are you for real there Kimy...you want par for what in particular..?
Poor Kimy. Your posts suggest you almost went under when rates were raised couple years back. Being at emergency levels now isn't enough, and you need them lower. Maybe you should have begun this business of yours in Singapore instead. Or maybe your business model for NZ is not all that great to begin with.
To be in a position where so much of your life and that of your descendants depends on something which you have zero control over... I don't envy you mate, nor do I your tenants who are the first to suffer your frustrations, second in line being the the readers here at interest.co.nz
Has it not dawned on you that if peeps are buying then need for rentals will decrease. This leaves cap gain, which may or may not happen once rates are lowered some more, also leaving the possibility that the reason for lowering rates will trigger the sell orders. And without being too presumptuous it sounds like you're screwed if/once they go back up. Somebody said here couple days ago that the coming demographic shifts will see our market do same thing as Japan and to lesser extent USA, about 10 years off. I say market that anticipates this will begin selling before the event (a sell the rumour, buy the fact kind of thing). Perhaps the bulls will be right and the market doubles again, etc. Most everything else will have too, in that scenario.
Investing on cul-de-sac's might just lead you down one, with your rig being too long to turn around once you know you need to.
Be careful bro. There are shadowy players out there who would just love to take down NZ, wiping out guys like yourself, for another asset grab.
Listen to the chatter
Dont know whether you noticed, but Gareth Vaughan deleted all the comments from Matt Nolan's 4th article, wherein he advocates a levy on depositors deposits held in NZ banks. Then there was BH's article against the OBR. Well, not understanding the finer nuances of the OBR I took the plunge and went and read through the white paper (or whatever you call it) on the OBR.
Hard going, but got through enough to get the general gist of it.
What sticks out is this. The OBR defines how the shareholders and creditors take a haircut, then it defines how much of the depositors deposits are frozen, and the amount of the deposits that is "not frozen" is government guaranteed. That says the government IS in the business of providing a government guarantee, just not all of it. That sounds ok. Sounds reasonable in fact.
So I wondered, how would you "insure" an unquantifiable amount that would be frozen. You cant unless you assume the worst and "insure" the lot.
If you do a search on (global) government guarantees on banks deposits up to $250,000 you might be surprised at the size of the list. In the case of the US it's $260,000 USD So I wondered why is the NZ government going to such lengths to limit its exposure by way of "guarantee" by way of the OBR, and in the aftermath of the Cyprus jiggery-pokery it seemed that maybe the NZ government is in possession of non-public information about how much overseas hot money (whether it be Russian or Middle-East or Asian) is sitting in local nz banks and doesnt want to be on the hook for guaranteeing outsize safe-haven-seeking missiles. With more on the way. Parity with USD anyone?
And so back to Kimy and Roger Kerr
Do you really think interest rates have anything to do with the price of the NZD
All I know about this is that Key has promised he will only do it once. So if he takes 100%, then that's all he will need. A hole in the ground seems the only safe places these days, literally.
Kimy
Do you really believe that the interest rate is the only criteria?
Australian OCR interest rate is 3.0%
That is 20% higher than New Zealand
And that is much more attractive than NZ
So what is your New Zealand case?
But then you can right now get 11% on amounts greater than $150,000 in Cyprus
http://cyprusbank.org.ua/index/0-8
Examine it carefully now
Dont know what you can get in Zimbabwe
Scrap company and paye tax. Reduce GST to 10%. Introduce a 2% Financial Transaction Tax. Extend OBR to bank Debtors (why should only those bank customers in credit take the hit?), and we will have regained our Pavlova Paradise!
Is that Pavlova the Cake? or the Pavlovian Dog?
Haven't tried the dog. Is it an asian dish?
Try Pavlov's Dog .. mouthwatering .. enough to make you salivate .. even drool
A yen type stew maybe?
Can someone put up Winston Peters email address .. then we can forward these suggestions on to him .. I dont think he follows these pages
Is this the redemption of Winston Peters? Is this his Lazarus moment?
Dirty Deals - Dirty Money
If you didn't know it before you know it now
Like, it's not really news around here, but now it's official
New Zealand turns a blind eye to the movement of large sums of money
New Zealand and the Cook Islands feature prominently (in the following Kiwileaks article), accused of lax regulations that turn a blind eye to the movement of large sums of money.
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10875898
I suppose you'd have to appreciate iconoclast, last time Winnie and GOVT. mounted an illfated challenge to expose the winebox and all it's dirty laundry.....
This time the GOVT is the winebox.......
Even though Winston may find credible evidence on the part of this Administrations complicity in suspect money movements exposing N.Z. to detrimental effects, he will be a voice in the wilderness. He is held in contempt by much of both the Administration and opposition political elite.....in fact , the level of smugness now shown by National on most levels has the contempt of an untouchable about it.
Talk is not enough....Peters would need freinds in high places, all the while Key's man Fletcher would be scurrying about with a hover ,mop n bucket.
"And the Big Pullback" will occur when?
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.