News and Opinion, sponsored by RaboPlus

By Roger J Kerr

The trend down in the Kiwi dollar was never going to be a smooth and tidy one given the increased daily volatility that is now the norm in the foreign exchange markets.

The almost daily switching between “risk-on” and “risk-off” in global investment markets is jagging the Kiwi back up again from regular bouts of selling. Hedge funds, bank proprietary FX trading desks and other currency speculators continue to be attracted to buy and sell the AUD (and thus NZD) on these short-term market mood swings.

However, there has been no fresh development to change the medium term view that the NZ dollar is on a major downtrend against the USD that should take it to the mid to low 0.6000’s.

For the meantime, the NZD/USD rate is flicking up and down between 0.6800 and 0.7000 until there is the inevitable build-up in momentum to take it lower.

That downward momentum really has to come from the Australian dollar as all the other drivers of the Kiwi dollar still suggest lower levels (i.e. weaker EUR, the wide interest rate gap to the US and still poor economic performance).

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By Roger J Kerr

There were no surprises with the weak employment data last week, causing both interest rates and the NZD to decrease.

Yet again the moneymarkets and bank economists have been forced by the economic facts to push their timing of OCR interest rate increases back to June/July form the previous March/April predictions. Go back a couple of months to early December a number of the bank economists were confidently predicting the first OCR increase in January 2010.

Unfortunately you never see any explanation as to why those forecasts were so wrong.

These interest rate forecasters are either just guessing with these very changeable predictions, or they are just so removed from what is actually happening in NZ businesses and industry sectors that their economic theory always dominates over the reality.
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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

In the clichéd rugby vernacular, it appears to be “a game of two halves” for the Kiwi dollar currency movements over the next 12 months. While having made impressive gains to 0.5900 from the low 0.5000’s over recent weeks there are a number of short-term forces and events that suggest the NZD/USD exchange rate will not sustain its gains and return to the low 0.5000’s.

However in the medium term to longer term (the latter part of 2009 and into 2010) against a back-drop of an improving New Zealand economy and potentially local interest rates increasing ahead in timing of other countries, the Kiwi has a far higher probability to be appreciating above 0.6000.

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By Roger J Kerr

There was no great reaction by the local forex markets to New Zealand’s current account and GDP figures for the December quarter released last week. The data was historical and very much in line with prior forecasts.

Most of the $16 billion current account deficit is permanent and structural, but exports outweighing imports over the coming 12 months should reduce the trade deficit component.

GDP contracted 0.9% in the December quarter and consensus forecast are for two further negative quarters in the first half of 2009 before we see a return to positive growth.

The NZD FX market has already priced-in this expected economic performance.

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Closing exchange rates this week represent significant appreciation of our currency since the beginning of the month.

On a trade-weighted basis, the NZ$ is up 10.7% over the month so far. Against the US dollar, the yen, and the British pound, the gain so far is about 14%. Against the euro, it is 8%.

Changes can be tracked easily on our chart of daily rates here >>>

You can also watch live rates, here >>>