Bernard Hickey talks with HiFX Senior Dealer Dan Bell about the week's currencies and markets action in their 'Never a dull moment' report, including news a bond auction failure in Germany has deepened the Eurozone crisis and helped drive the New Zealand dollar lower as investors pulled out of risky currencies fearing a slump in global economic growth.
Germany planned to sell 6 billion euros of government bonds and was able to sell only 3.5 billion euros.
"The market interest in supporting German sovereign debt is starting to wane and that is a big issue, because Germany is seen as the safe haven in Europe and if investors aren't interested in buying German sovereign bonds it puts into question the entire European region," Bell said.
Bond yields rose across Europe, including in Austria and Belgium.
Belgium-based bank Dexia also told investors this week that talks for a restructure were in trouble, which called into question France's AAA credit rating, because it is exposed to Dexia's restructure.
The main issue for Europe remains whether the European Central Bank will print money to buy Southern European bonds. France wants the ECB to print, while Germany is opposed to any printing and buying of bonds, fearing inflation and the creation of a moral hazard for both banks and governments.
There is also talk of moves to bring the 17 Eurozone governments fiscal strategies together, but any fiscal union will be difficult to get voters to agree to it.
China, American worries
Bell also looks at the failure of the US Congressional 'Super Committee' to find US$1.2 trillion worth of deficit cuts this week.
"There's going to continue to be plenty of political brinksmanship between the Democrats and the Republicans before we get anything further from them," he said.,
China's Purchasing Managers report also came in at a 32 month low, suggesting a sharp slowdown in the economy that dominates the economic outlook in our region.
"The prospects of a hard landing in China would be the final nail in the coffin in terms of what we're going through and the potential downside for risk."
The New Zealand fell to around 73.8 USc late in the week, with support at around 72 USc and the prospects for another 10-20% fall in the New Zealand dollar if the situation in Europe deteriorates further, Bell said.
The New Zealand dollar had stabilised around around 47.5p and 55.5 euro cents.
"We will be less attractive to investors in this current environment with this credit crisis getting worse."
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.
(Updated with more detail)