Double Shot Interview: HiFX's Dan Bell reviews the week's currencies moves, including new NZ$ highs; Europe's debt deal; America's debt ceiling debate; next week's OCR decision

Double Shot Interview: HiFX's Dan Bell reviews the week's currencies moves, including new NZ$ highs; Europe's debt deal; America's debt ceiling debate; next week's OCR decision

Bernard Hickey talks with HiFX Senior Dealer Dan Bell about the week's currencies moves, including the New Zealand dollar's rise to ever higher record levels against the US dollar, pound and euro after a European debt deal and on fresh signs a recovering New Zealand economy may push the Official Cash Rate up sooner than previously expected.

Bell said the New Zealand dollar rose to a record high of 86.4 USc late in the week as investors put 'risk on' the riskier currencies. Stronger than expected inflation data also boosted the currency. See Alex Tarrant's report from Monday on strong CPI figures.

Bell said chart analysis showed the Kiwi dollar had the potential to rise to 90 USc after its rise through an initial level of 85 USc this week.

"You have go back over 30 years to pre-float days to get any kind of guide to how high the NZ dollar could go. At over 86 USc, to see it up another 300-400 basis points is not too much to ask given how much it has risen recently," he said.

The New Zealand dollar also rose this week briefly to over 80 Australian cents, although it ended the week a tad softer on some profit taking.

"You've still got the global economy awash with cash. The US has been on their money printing exercise for the last couple of years. Other central banks have had other forms of quantitative easing or money printing with low interest rates and the money has to go somewhere," Bell said.

"The New Zealand dollar relative to a lot of other economies is still quite attractive," he said.

This week's debt bailout in Europe was still fundamentally another 'kicking of the can down the road', although it was a great confidence builder. Markets would focus on the confidence aspects for now.

US default and double dip recession?

America's political debate over how to raise its debt ceiling was also now the focus of market attention.

There was still a low probability of a US default on August 2, but if it did happen there was the ironic prospect of a flight to quality of US dollars and US Treasuries in the event of a default. That would push the New Zealand dollar down, he said.

Looking ahead to RBNZ on Thursday

This coming Thursday's decision by the Reserve Bank of New Zealand on the Official Cash Rate would be closely watched by currency markets. Rates are expected to stay on hold, although strong inflation figures this week have seen some economists bring forward their views on when the OCR would be hiked.

"We're not expecting any change to the OCR next Thursday. The expectation is he's going to talk up earlier rate hikes and the market is bringing forward expectations of the first rate hike from December or early next year to September this year," Bell said.

Intervention?

Governor Alan Bollard has to comment on the New Zealand dollar, he said.

"The New Zealand dollar over 86 USc has to be a huge issue for any manufacturing exporter who isn't getting the prices the commodity exporters are. (The high currency) is going to be doing some of the tightening for him," he said, adding there were no signs yet of Reserve Bank intervention to push the currency down.

"If you saw the markets get to the point where the appreciation became disorderly that's when they'd get concerned and (potentially) intervene on a smoothing basis rather than make some change to the overall direction, because the Reserve Bank doesn't have the firepower to change the underlying trend in the long run," Bell said.

See our summary of the interest rate outlook here in The Crystal Ball.

Dan Bell is the Senior Dealer at HiFX, a UK-headquartered foreign exchange dealer with significant operations in Australia and New Zealand. It has a dealing room in Auckland. See more detail here.

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8 Comments

Does anyone know at interest.co how much money has been printed in the US in the last 2 rounds of printing compared how much money there is in the US economy as a whole so we can get a gauge on what sort of inflation that is going to come from there

Thanks Paul

Tax Currency traders.  They are just money for nothing speculators that contribut nothing and  help wreck the honest productive sectors of the economy like the others of their ilk.  Our weak RB and government seem to think that fighting them in the currency speculation game is their only weapon, pointless, far easier and more efective to tax them.  With a currency speculator for a PM I guese there is no likelyhood of this however.

on the other hand those of us with savings rather like a strong $. interest rates may be low but we can buy more every day.

Hello

Look the markets are the only way forward for young bright people.The young know there way around the computers,this is there future of making big money.

Nobody is teaching people how to earn money,the markets have trillions flowing daily.

There is'nt the jobs for young people to earn any money,we don't any more toilet cleaners.

The future for young people is earning income from the markets.The money has moved from the West to East.This is NZ's time to make a fortune for this country,we just need to train these people instead off letting them go on the dole.

Thanks

lite in comprehension of what constitutes an income:

That 'money' has to, sooner or later, be exchanged for goods and/or services.

Kindly explain where those will appear from, given that trading in 'money' now exceeds trading in goods/services by several orders of magnitude?

Sounds fair enough, though, they'll be doing virtual work, making virtual money. Just tell then they can't actually exist on virtual food.

You got the 'lite' bit right.

What does it actually make? what good?  it seems quite a % of ppl think making money without actually making anything is the uh best way.....I think young ppl are going to learn quite quickly this isnt the case.

regards

Give up making something yourself, just take someone elses?

Does interest.co.nz really need this column every week?

Once a month would seem enough.