News and Opinion, sponsored by RaboPlus

By Roger J Kerr

The tight link between the NZD and AUD is slowly breaking down as we anticipated, and as reflected in the NZD/AUD cross-rate falling below previous lows to new 10-year lows of 0.7600.

However the AUD remains the largest single largest influence over the day-to-day NZD/USD movements.

One still has to be confident of the currency outlook that the NZD/USD rate will move lower over coming months as the USD strengthens to 1.3000 against the Euro. However, as I have stated several times over recent weeks, it also requires global commodity prices to be pulling back down to bring the AUD back below 0.9000 and lower.

The jury is still very much out on when and how commodity prices will behave this year after the dramatic spike higher in 2008, the big collapse and then the recovery upwards again last year.

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By Mike Jones

The NZD was double teamed last night by deteriorating investor risk appetite and a broadly stronger USD. From around 0.6950 this time yesterday, NZD/USD has slipped to around 0.6860.

Appetite for ‘risk-sensitive’ currencies like the NZD began to come off the boil yesterday afternoon. A newspaper article quoting the Chinese central bank Deputy Governor as saying China will raise rates at an “appropriate time” spurred fears Chinese policy tightening could put the brakes on the roaring Chinese economy.

Asian equities and commodity prices slipped in response, denting demand for global growth sensitive currencies like the NZD. The Nikkei fell 1%, and the Shanghai composite index slumped nearly 2.5%. The CRB index (a broad measure of global commodity prices) has fallen close to 1% over the past 24 hours.

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Australia’s December 2009 quarter’s gross domestic product (GDP) came out at +0.9%, seasonally adjusted, according to todays release from the Australian Bureau of Statistics.

This what what the market expected and was up from a (revised) +0.3% for the previous quarter. Year on year, GDP was +2.7%, not a shabby result in the middle of a global recession.

By comparison, New Zealand managed minus 0.7% in the year to September 2009. Our December GDP results will be released Thursday, March 25, 2010.

Growth in Australia came from private investment in machinery and equipment (+0.8%), public capital investment (+0.6%) and household consumption (+0.4%). Offsetting the growth were imports of goods and services (minus 1.6%).

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By Mike Jones

It was a bumpy ride in the NZD last week. After rising above 0.7150 early in the week, NZD/USD later succumbed to rising European credit fears, and finished the week closer to 0.7000.

Last week’s local news was relatively unexciting. Data developments were a little mixed, with Friday’s surprisingly good trade balance offset to some extent by an unexpected drop in December’s building permits.

Meanwhile, the RBNZ’s January OCR review was admirably boring and commendably short.

As widely expected, Governor Alan Bollard stuck fast to December’s script (while keeping the OCR at 2.50%, for the record).

As such, it was really offshore factors that set the direction for the NZD last week. News China is beginning to clamp down on excessive credit growth raised fears a slowing in Chinese growth could derail the global recovery. And an escalation of the fiscal crises in Spain, Portugal and particularly Greece reinforced wider credit concerns for the European region, knocking investors’ risk appetite for six. (more…)

By Roger J Kerr

The traditional volatility and wild swings in the Kiwi dollar currency movements over the Christmas/New year holiday period due to thin and illiquid market conditions came to the fore again this year.

Unfortunately for local exporters struggling with the high NZD value against the USD, the exaggerated movements were not downwards below 0.7000. A combination a marginally weaker USD, higher global commodity prices and a re-surging Australian dollar lifted the Kiwi currency from pre-Xmas levels of 0.7050 to highs of 0.7450.

Yet again, the appreciation of the NZ dollar had nothing to do with anything positive from the NZ economy, the Kiwi merely following the big brother currency across the ditch, the AUD. (more…)

By Mike Jones

The NZD has spent the last 24 hours trapped in a 0.7360-0.7430 range.

Markets were rocked last night by a surprise monetary policy tightening by the People’s Bank of China. The PBOC increased banks’ reserve requirements 50bps (effective 18 January), the first change since December 2008. Concerns tighter monetary conditions could slow Chinese growth and dent demand for the commodities it imports prompted a knee-jerk slide in commodity prices and ‘growth-sensitive’ currencies like the NZD. The CRB index (a broad measure of commodity prices) tumbled around 1.8% and NZD/USD dropped 0.8% to nearly 0.7370.

While part of these movements were later reversed (Goldman Sachs released a report suggesting China’s pre-emptive tightening should be viewed in a positive light), a poor night in global equity markets kept the NZD under pressure. The S&P500 is currently down around 1.3% following a stuttering start to the US earnings season.

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