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Kiwi dollar drops again at the end of the week, breaching four key levels and the TWI is now at its lowest in 2013

Posted in Currencies

For the second week in a row, the New Zealand dollar fell sharply at the end of the week trading in New York.

The primary driver was better than expected US employment data in the Non Farm Payrolls series.

The US Department of Labor reported a rise of 175,000 in payrolls last month, beating estimates by around 26,000, or about 15%.

Against the US dollar, the kiwi fell below 79 USc for the first time since July 2012.

Against the Japanese yen, the kiwi fell below 77 yen for the first time since March 1, 2013.

Against the euro, the kiwi fell below 60 euro cents for the first time since May 2012.

Against the British pound, the kiwi fell below 51 pence for the first time since December 31, 2012.

Against the Aussie dollar, the kiwi fell on the day although we are tracking the trans tasman currency which fell in a similar manner to the kiwi.

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The TWI is now at 73.7, its lowest level in 2013.

Also of note is that China's yuan reached a new high against the US dollar - just in time for the US-China summit.

Those stronger-than-expected US jobs numbers saw US equities rise, oil jump, and gold retreat back below US$1,400/oz.

The NZ dollar has fallen 8.8% since it reached US$0.8634 on April 12, just over 8 weeks ago.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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10 Comments

So this fall in the Kiwi is

So this fall in the Kiwi is going to be benign for inflation right? Being as things like oil are priced in US$. That's why we can maintain our interest rates still set at emergency GFC levels?
By the way when you say stronger than expected jobs figures you do mean the rise in unemployment from 7.5% to 7.6%? So you mean unemployment was stronger (as in it went up?).

No, actually I mean markets

No, actually I mean markets were expecting NFPs to grow 149,000 (same as April). All employed actually grew 319,000 which was higher than expected. And another unexpected result was that 'discouraged workers' fell to 780,000, the first time they have been below 800,000 in quite a while.
Yes the unemployment rate went up, but this chart puts it in perspective. (click on 'Rate'.)

David, The US market

David,
The US market certainly agreed with you that it was positive- as shown by Stocks soar; Dow gains 200 points on jobs data.
Looking at your TWI chart, as I understand technical charting, the NZD has now broken down through the long term trendline, and so is likely to keep going, at least to some support  likely at 69 vs the current 73 on the TWI. So it could head there fairly quickly, and then pause.
The move down must be good for exporters and import substituters, while I would have thought inflation expectations here have enough slack to digest this drop without too much stress. 

Forexfactory reckons the

Forexfactory reckons the consensus was for a 167K gain - so the 175K was a very small over - ditto with the Bloomberg survey which went 163K - that 149K looks mysteriously low. In contrast the unemployment rate was NOT expected to rise:
http://www.forexfactory.com/

Yes Andrewj,  the bls stats

Yes Andrewj,  the bls stats can be interpreted to suit the viewer's bias.
 
Here is another version that doesn't paint a pretty on-going picture. 
 
In a word: not pretty. As of May, assuming realistic LFP assumptions, the real U-3 unemployment rate should have been not 7.6% but 11.3%.
 
Charles Hugh-Smith states, and as you have noted many times:
 
The key feature of digitally creating credit/money is this: it is immeasurably easier to digitally create claims on real-world assets than it is to create real-world assets.
 
It is the failure to create NZD assets that is driving the value of the NZD down against virtually all other currencies.
 
Since the government acted out it's intention to run a surplus and pay down government debt during April, foreigner investors have had lilttle choice but to divest their NZD holdings in search of any return elsewhere. 
 
Where were those owning ~69.0% of issued NZ government debt supposed to place their share of NZD 8.120bn net redemptions during April, only to see a further NZD 110 million mature in May?
 
Government action truly pulled back the veil exposing weak NZ demand for capital to drive economic activity, beyond that already satisfied by insurance claims and cheap  neutralised currency swapped foreign borrowings undertaken by banks.

 David,as others above also

 David,as others above also have questioned the estimates you have detailed,  simply shows how data can be portrayed( similar to recent  headlines drawn from any  Tony Alexander survey .From the figures I have, the consensus estimates(forecast) for May NFP was +165K . However April figures were revised down from +165K to 149K.and average hourly earnings for the month flatlined M/M .On a three month basis, job creation is down substantially. Currently forecasts for employment see job growth to turn negative again in the coming months.With regard to our currency ,and I will quote Tony Alexander from his May BNZ  diatribe '.the NZD is going only one way and that is to 90USD and above', ending his economic report with the reasoned prophetic statement of 'Blah Blah Blah'.   As  Stephen notes above the NZD  is falling for other reasons than one data point from the United States.. Utilising a  policy of a strengthening currency to allow simultaneous domestic asset inflation and its perceived wealth gains will have interesting outcomes as the currency reverses and  depreciates.My opinion, if you are purchasing a home in New Zealand  with the view of  achieving capital gains based upon alluded supply issues with people clambering over one another, take  a look at the bigger picture..Consistent with this theme , Chinese trade data came below forecast. 

As  Stephen notes above the

As  Stephen notes above the NZD  is falling for other reasons than one data point from the United States.
 
While tempted, I resisted referring to the US Dollar index collapse over recent days - It was so obvious it seemed insulting to make reference to the NZD collapse in terms of USD related events - but since you brought it up, it's only fair I highlight reality. Last week's rapid rise in the value of JPY as reflected in the USD/JPY pair was a more likely cause for NZD weakness - which relates to past Japanese investment in NZ. Margin calls in such a volatile environment demand liquidation of whatever can be sold.

Nice to see someone who does

Nice to see someone who does not have his/her head in the sand. Excellent analysis.
Looks to me as though there has been a big turning point in the past few weeks re:currency etc, but precious few have woken up to it. Once petrol shifts north of $2.20 lets watch how things pan out. To take one example - our interest rate settings are looking more bizarre by the day.

Ahh yes the petrol. That had

Ahh yes the petrol. That had a big impact on prices lifestyle blocks that still hasn't been forgotten going by action around my way. Rising petrol prices could sink the knife in. Be interesting to see the effect on jobs as well.