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Opinion: Kiwi$ drops with US stock market on weak US housing figures
October 21st, 2009By Mike Jones
The NZD was knocked from its highs overnight, following a rebound in the USD and an easing in investors’ risk appetite. After climbing to around 0.7575 yesterday morning, NZD/USD fell by around a cent to 0.7470.
Over the past few days, the NZD has been caught in a ‘perfect storm’ of rising risk appetite, increasing commodity prices and weakness in the USD. However, investors’ appetite for risk hit a speed bump last night following signs the US recovery may be more tepid than some had been banking on. September’s US housing starts and building permits both disappointed the market, and PPIs registered a surprise fall (-0.6% m/m vs. flat expected). As a result, US stocks largely erased the previous day’s gains and risk appetite eased off its highs.
Retreating risk appetite spurred demand for “safe-haven” currencies like JPY, CHF and USD at the expense of ‘growth sensitive’ currencies like the NZD. The rebound in the USD was assisted by a 2% surge in USD/CAD following the Bank of Canada’s (BoC) meeting overnight. The BoC left their policy rate unchanged (at 0.25%) but said CAD gains had “more than offset” signs of improvement in the economy.
While most currencies came under pressure from the stronger USD last night, it is notable that the NZD tended to underperform against its peers. All of NZD/GBP, NZD/JPY, NZD/AUD and NZD/EUR drifted lower last night, perhaps reflective of the outsized NZD gains of recent days.
Today’s September’s migration figures will likely continue the trend of higher net permanent inflows, mostly due to falling departures, while tourist visits could be up as much as 10%y/y, with ski field bound Australians by far the biggest driver of that lift. Growth in credit card billings will probably moderate in September, after August’s big 1.6% increase, in line with the modest lift already seen in electronic card transactions.
Decent appetite for NZD and AUD on dips should keep NZD/USD supported above 0.7400 for today. Meanwhile, sellers are expected to emerge on rallies towards 0.7550.
A rebound in the USD saw all of the major currencies depreciate overnight.
Gains in the USD were led by a surge in USD/CAD following the Bank of Canada’s (BoC) decision to leave interest rates unchanged (at 0.25%) overnight. While the decision surprised no one, the BoC said its policy rate will remain on hold until the end of the second quarter of 2010. Some had expected the BoC to bring forward expected policy tightening. The Bank also registered it concern over the high CAD, saying its strength had “more than offset” signs of improvement in the Canadian economy. USD/CAD soared nearly 2% following the decision to 1.050 from around 1.030, and this paved the way for a more broad-based strengthening in the USD.
Fears over the strength of the US economy and a negative day in stock markets also spurred demand for the USD as appetite for risk eased from its highs. US housing starts barely increased in September (+590,000 vs. +610,000 expected) while building permits actually fell, in contrast to expectations for an increase (+573,000 vs. +595,000 expected). US producer prices likewise came in on the weaker side of expectations, falling 0.6% m/m against flat expectations. Signs the US recovery may be sluggish weighed on US stocks markets, despite better-than-expected earnings announcements from Caterpillar and Pfizer. The S&P500 is currently down around 0.8% (and is now around flat for the week).
Against the broadly stronger USD, USD/JPY popped above 91.00 and EUR fell below 1.4900, from levels close to 1.5000. GBP was nudged back below 1.6400, but losses were limited to some extent by better-than-expected UK public borrowing figures (£14.8b vs. £15.5b expected).
Looking ahead, we don’t think USD weakness will proceed at the same speed we have seen in recent weeks. Officials are becoming increasingly concerned over the weakening USD and rhetoric has been ramped up. Notably, a senior French official said overnight that “a euro at $1.50 is a disaster for European industry and the economy”. Various other European officials, including Eurogroup chairman Juncker also reaffirmed the need for a strong USD last night. We may get further clues on the Fed’s view on the USD from a speech on Monetary Policy from the Fed’s Plosser tonight. The Bank of England’s October Board minutes will also be released which will be scrutinised for any hint the BoE considered an expansion of its asset purchase scheme.
For today, support on the USD index is seen towards the previous 14-month low of 75.20. Resistance is eyed around 76.00.
____________
* Mike Jones is a BNZ Currency Strategist. All of the research produced by the BNZ Capital team of economists is available here.
Tags: BNZ Capital, Mike Jones, New Zealand dollar, NZD, NZD/USD
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October 21st, 2009 at 11:06 am
Canada needs interest rates to rise to dampen an overheated property market among other things but the powers that be there are so scared of parity with the US dollar that they are prepared to try and beggar themselves (by keeping rates too low for Canada for too long) in an attempt to stave off the rise of the CAD against the USD.
In my opinion it will be hard for most countries to keep their currencies from appreciating against the USD medium term given the dire current and future fiscal outlook in the US, un-payable debt levels, and reckless monetary policy.
October 21st, 2009 at 11:41 am
Yeah whatever BNZ.. cheap freshly printed US$$$ in the billions flooding the globe, will push the kiwi to breaking point.. Sentiment down today, up tomorrow, blah blah. Noone actually believes this do they? I mean seriously?
Hey Bollard if your awake, you planning to DO ANYTHING?!?!?! The people running this country need the boot.
Brazil has got the right idea .. and here’s a new concept they ACT on them ..
http://www.zerohedge.com/article/obrigado-brazil
October 21st, 2009 at 12:35 pm
Go easy on Bolly, Matt S. These days he’s clearly just a mouthpiece for the international banking community and doesn’t give a rat’s whatever about the productive sector and how we’re going to pay back all that debt. Either that or he’s just plain lost the plot.
http://www.radionz.co.nz/news/stories/2009/10/21/1245ce2d5367
October 21st, 2009 at 12:43 pm
It’s very simple. If there’s too much liquidity, you want to own something real. After all, the other side of too much liquidity is not enough stuff.
Then you’ve only got to work out what will be most in demand, up to and including a Mad Max scenario.
Given that energy will be scarce, anything that contains ‘embedded energy’ (like an existing building) must get more valuable as the cost of replacing it escalates. Which creates a real-estate bubble but for reasons based entirely on physics.
We live in fascinating times…..
October 21st, 2009 at 12:50 pm
Crikey neilC, it’s not wise to let him know there was a plot….Bolly will be searching everywhere for it. Powerdownkiwi having trouble selling his building! …. why buy rubbish when you can have copper and gold…
October 21st, 2009 at 1:01 pm
Neil, I’m afraid that’s what working in a bank does to someone.. Besides being dreary and life sucking, it has made me wise to all the games and made me increasingly cynical.
October 21st, 2009 at 1:05 pm
Wally,
Powerdownkiwi is onto something re embedded energy. Luckily for us there’s loads of that in gold, silver and COPPER!
October 21st, 2009 at 1:39 pm
John Walley on TV1 this morning:
http://tvnz.co.nz/breakfast-news/high-nz-dollar-hits-exporters-4-49-3085315
October 21st, 2009 at 2:14 pm
OK, so the RBNZ might not be able to do anything in isolation, but NZ as a Sovereign nation can absolutely do something about the exchange rate. There are a number of things that could be done.
Foreign currency exchange should be for trade and not speculation / gambling. Here’s some idea’s…
- Ring fence foreign speculative accounts and funds and discourage through tax/levies or simply legislate against them. Thanks for your interest in NZ, sorry we are not a casino.
- Or have a tiered interest rate structure. Zero interest on speculative accounts. Tax on any exchange rate gains, OK, you can come and play, but any excessive behaviour will not be tolerated, and will be taxed. Have a nice day.
- Peg the kiwi to a basket of currencies. Not my personal favourite, as it just addresses the symptom not the cause.
- Print money, dilute the value of the currency. Roll out a program, to say print money to pay all welfare payments for a year. Watch the kiwi fall like a stone.
- Go back to the gold (or commodity basket) standard. The fiat is dead anyway, not driving like it used too, we need a new one.
- Adapt to a strong kiwi dollar.
- Do nothing. Sit around and complain about it. Publicly express concern. Let country go to ruin. Keep ratings high enough in polls by any other means to win another election. Rinse and repeat.
October 21st, 2009 at 2:47 pm
Obrigado indeed to Brazil. Note however that in response to this brazen act of economic sovereignty the vested interests are already scaremongering to head off any chance of contagion:
“Unfortunately this is going to raise in some people’s mind that Brazil remains a risky place to do business,” said Christopher Palmer, who oversees about $5 billion as head of global emerging markets at Gartmore Investment Management Ltd. in London. “How many countries in the world are proposing capital control?”
http://www.bloomberg.com/apps/news?pid=20601086&sid=afcviaH_wAf8
This is the sort of talk that would have our pollies folding like napkins.
October 21st, 2009 at 3:12 pm
This is the sort of talk that would have our pollies folding like napkins.
Neil, your right there. !! They’re already in line, standing to attention and awaiting further orders.
Time our exporters / producers did another tractor run up the steps of parliment, no?
October 21st, 2009 at 3:20 pm
Bing loses its bang with fewer ads.
If we are weak….
Here’s one to PLUG….and play.
Here’s another PLUG required, GATES plugged it to the TUNE of a 100Mill and no DICE
http://www.dailyfinance.com/2009/10/20/bing-loses-its-bang-with-fewer-ads/
A hole lotta plugging needed there. GATES opened.
At least he uses his own money…not like the FED.
Flood, pestilence and famine to the GOLDMAN’s of this world.
In the old days they would have been card sharps and find the PEA officianados.
Round and round she goes, where it stops, nobody knows.
October 21st, 2009 at 11:21 pm
Les, John, Selwyn obvioulsy the Breakfast comments on TVone made not much of an impact here- hmm one has to ask questions.
Here an article I prepared:
New Zealand is a young country, is not like Europe with a long history in economics. There is a fundamental difference between the two. In many European countries the process of manufacturing started because people needed tools, equipment and machinery – building their houses and farm their land. They needed transport on land, sea, lakes and rivers. They needed power and communication. Many big companies today started with a “Two men band” (ABB) and manufactured for the public, entirely “Homemade”. The situation created jobs and highly skilled people – and yes over time it provides prosperity and wealth because it was and sill is, next to the export business “Homemade”.
Let’s have a look what happen here in New Zealand with a few, but important example. Do we manufacture tractors or any other machinery for our agriculture industry ?
Do we manufacture any rolling stock for transport apart from buses ?
Do we manufacture rolling stock for public transportation ?
Do we manufacture any equipment for the power industry ?
Do we manufacture equipment for communication ?
Do we manufacture any equipment for our national security, safety ?
Do we manufacture any equipment for the service and building industry ?
Do we manufacture any equipment/ machinery to build our road system ?
Mostly bloody imported !!
As I mentioned above usually strong segments in a successful nation’s economy such as “Light Industry” are here in NZ missing. That is the most important reason why our economy as a whole is unbalanced and heavily indebted. We live in a consumption culture with too much emphasis on the Real Estate industry. We don’t have a manufacturing culture. Tax and other problems described by others are only the symptoms but not the real cause for the dilemma.
I think we must fundamentally change our economic path. The architects and brains of this country need to address this problem with a new strategy. A nation cannot work day in day out, long hours and literally spend their salaries/ wages back into foreign bank accounts.
A good start:
Creating and implementing policies to introduce and support a “Green Light Industrial economy” in the current climate are essential. This provides economic potential, it makes us as a nation less depended, creates skilled jobs etc. It also makes the job for already existing manufacturers much easier (supply, research etc.)
Please read my first and other articles on that blog: http://www.interest.co.nz/ratesblog/index.php/2009/10/15/bernard-hickey-talks-on-tv1s-breakfast-about-the-awful-budget-situation/#comments
Good info:
http://www.scenta.co.uk/eco/eco%20careers/cit/1730840/uk-industry-government-unveils-manufacturing-plan-for-green-economy.htm
But then many Kiwis would not like do have a high standard of living, but a happy one. Are we prepared to live with less, less services, less consumption
less healthcare, less education – obviously money has to come from somewhere.
Cheers Walter
October 22nd, 2009 at 6:26 am
Walter – I’ll respond to your thoughtful and detailed comment when I get a mo in next day or so, in the interim have a look at:
http://www.interest.co.nz/ratesblog/index.php/2009/10/19/have-your-say-bill-english-wants-to-close-loopholes-for-sheltering-income/#comment-42657
Cheers, Les.
October 22nd, 2009 at 8:57 am
Walter – following on, a bit; we could debate till the cows come home* about the ‘whys’ and ‘why nots’ of where we are, and that has it’s uses in terms of the learning. I think we agree on the ‘what’ in terms of broadening and deepening our export mix to include more value add, via manufacturing/elaborates/hi-tech products and services – however one cares to define it. However, I we seem depart on the ‘how’ of making it happen, with perhaps you representing a style/context of thinking that values more of a centrally planned approach, which is something I see as being quite easy to misapply if context is not appreciated, although it does have it place, eg. infrastructure. So I’m keen to argue for a more pluralistic approach and support to individual private firms and entrepenaurs by not taxing the living daylights out em’(!!) and providing tax credit incentives to faciltate ‘winning behaviours’. Anyway, you might find this an interesting read:
Restoring American Competitiveness
by Gary P. Pisano and Willy C. Shih
http://hbr.harvardbusiness.org/2009/07/restoring-american-competitiveness/ar/1
You say, “Les, John, Selwyn obvioulsy the Breakfast comments on TVone made not much of an impact here- hmm one has to ask questions.” That might be because some see this as pointless discussion, but just as with restistance to change regarding a more balanced taxation structure, there will be those with a vested interest in not disturbing the status quo – that is those who enjoy inflation, volatility and a high dollar. I wonder who that might be? …..”but just as with restistance to change regarding a more balanced taxation structure, there will be THOSE……” Go figure.
http://www.netprophet.co.nz/news/tax/tax-think-tank-hopelessly-compromised-greens.html
As for the Dr B’s comments yesterday and what they have been responsible for overnight, hey, he’s just doing his job – increase MCI = throttles inflation, unfortunately as in the previous upswing, with the tradeables taking the hammer while non-tradeables spends on. Ground-hog Day here we’ve been. We ain’t learning are we Dr B. – perhaps just say nowt, or were you trying to throttle via increasing MCI? Good going if you were.
* I wonder if they’ll be home before the chickens come home to roost? Or, our turkeys vote for Christmas?
October 22nd, 2009 at 11:02 pm
Matt just love this comment….
- Ring fence foreign speculative accounts and funds and discourage through tax/levies or simply legislate against them. Thanks for your interest in NZ, sorry we are not a casino.
At 118 times GDP we are a casino but what the hell let’s get some tax revenue or do what should happen and adopt Singapore’s monetary policy.