News and Opinion, sponsored by RaboPlus

By Danica Hampton

The NZD/USD has staged a bit of a recovery over the past 24 hours. After falling below 0.6820 yesterday morning, NZD/USD managed to push above 0.6950 last night.

Once again, debt issues in Greece stole the limelight. However, instead of imposing doom and gloom, investors were cheered by media reports suggesting European policymakers had made an “in principle” decision to rescue Greece from its debt troubles.

Investors hope that official assistance for Greece will help stop the debt crisis from spreading elsewhere in the world. While European equities were flattish, Wall Street has rebounded strongly. The S&P500 is currently up 1.6%.

Against a backdrop of strong equities and improving risk appetite, the USD was sold heavily as investors trimmed back safe-haven positions. EUR/USD spiked sharply from sub-1.3700 to nearly 1.3840.

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Reserve Bank Governor Alan Bollard has defended the bank’s performance through the financial crisis and its use of inflation targeting as its main monetary policy tool, but has said he welcomes reforms to taxation of property to rebalance the economy.

Bollard responded in detail to critics, including Opposition Leader Phil Goff, in a speech to the Canterbury Employers’ Chamber of Commerce in Christchurch. (Update 4 includes links to Economic Weather Report video)

See an Economic Weather Report on Bollard’s speech here on our video page.

Watch video on Youtube here.

Bollard said inflation targeting had stabilised inflation since its introduction with the Reserve Bank Act of 1989, although there remained other macroeconomic imbalances that needed to be addressed with tax reforms to the property investment sector.

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By Mike Jones

It’s been a bumpy ride for the NZD over the past 24 hours. After climbing to nearly 0.7140 overnight, NZD/USD has slipped back to 0.7060 – pretty much where it was this time yesterday.

Yesterday’s 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). So, provided the economic recovery continues to gather pace, the RBNZ will probably start budging its cash rate up around mid-year.

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New Zealand’s merchandise trade deficit contracted to NZ$487 million in October from NZ$994 million a year ago as both import and export values continued to trend downward, Statistics New Zealand said. (Update 3 includes video links.)

The October 2009 trade deficit represented 16.4% of exports, which was below an average of 30% of exports for the previous five years, Stats NZ said.

Trend values based on seasonally adjusted figures showed the trade balance fell into negative territory in October, with a deficit of NZ$23 million from a surplus of NZ$13 million in September. Seasonally adjusted exports (down 1.3%) fell more than imports (down 0.1%) over the month.

See Bernard Hickey’s commentary on the export and import figures on YouTube here, and on our video page here.

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By Mike Jones

The NZD was the strongest performing currency on Friday night. A combination of broad-based USD weakness and renewed optimism about the global recovery pushed NZD/USD up to nearly 0.7440.

‘Growth sensitive’ currencies like the NZD tended to outperform on Friday night. US stocks finished the week on a solid footing (the S&P500 rose 0.6% to be up 2.3% for the week) as upbeat earnings announcements from US retailers JC Penney and Abercrombie & Fitch buoyed optimism about the outlook for US consumption. Meanwhile, news the Eurozone economy has now formally exited recession (September quarter GDP rose 0.4% vs. 0.5% expected) supported gains in European stocks and further underpinned investors risk appetite. As a result, investors shunned ‘safe-haven’ currencies like JPY and USD in favour of the likes of EUR, AUD, and NZD.

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By Danica Hampton

US non-farm payrolls disappointed expectations. The number of jobs fell by 190,000 in October and the unemployment rate surged to a 26½-year high of 10.2%. The worrisome US data sparked a bout of ‘safe-haven’ demand, which initially saw both the USD and JPY strengthen. NZD/JPY fell from above 65.60 to below 65.00 and NZD/USD fell sharply below 0.7200.

However, the USD strength didn’t last long. US equity markets managed to eke out gains (thanks to analyst upgrades of both General Electric and Macy’s) and this helped support risk appetite. The S&P500 rose 0.3% on Friday and NZD/USD finished the week closer to 0.7250.

There was little to write home about from the weekend’s G20 meeting. The G20 agreed the economic recovery is too fragile to start removing stimulus measures, but stayed relatively mum on currencies. The absence of USD supportive comments from the sidelines of the G20, combined with an IMF report suggesting the USD is still “on the strong side” and last week’s Fed commitment to keep rates low for an “extended period”, will likely see the USD start the week on a heavy footing.

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