By Roger J Kerr
The Kiwi dollar exchange rate finishes the year hovering around the mid-0.7000’s, more or less where we expected it to be at this time.
For those with NZD/USD currency exposures it is highly relevant that the Kiwi has bounced off the 0.7400 region on two occasions in recent months, it also retreated quite quickly from 0.7800 when it spiked up a couple of weeks ago.
It is hard to see global commodity prices and sharemarkets zooming upwards over coming weeks, therefore upside for the Kiwi above 0.7700 appears limited.
On the other hand, wholesale dumping of the Kiwi is also highly unlikely given our relatively positive economic fundamentals and some global investors taking a liking to NZ Government bonds.
In addition to the normal value drivers of the NZD/USD exchange rate (AUD/USD, EUR/USD, CRB Index, Dow Jones Index, VIX market volatility index and the copper price etc) some very good lead-indicators for the Kiwi’s direction are the US and Chinese manufacturing surveys.
The Chinese PMI and US ISM indices have been decreasing since mid-year, which meant that the NZD strength to 0.8800 was always unsustainable.
The manufacturing indices now suggest that the Kiwi dollar should be trading in the low 0.7000’s.
On the basis that the Chinese PMI and US ISM stabilise and start to increase over coming months, the NZ dollar should hold well above 0.7000 and then head back above 0.8000 at some stage next year when our interest rates are also moving upwards.
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* Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com
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