By Bernard Hickey
Here's my weekly currencies review and outlook with HiFX's Senior Dealer Dan Bell, including a look at the New Zealand dollar's dip to 79 USc from over 80.7 USc this week on fears about the global economy.
We spoke initially about figures on Friday afternoon showing Chinese GDP growth slowed to a three year low of 7.6% in the June quarter, which was in line with expectations and not as bad as some feared.
Overall, investors have been disappointed this week with a lack of central bank action to boost the economy and further signs the European debt crisis is unlikely to be fixed any time soon.
"We've seen the US dollar broadly strengthen against most major currencies in the last week," he said, pointing to the euro's drop below US$1.22 and the New Zealand dollar's rise to fresh record highs vs the euro of over 65 euro cents.
"The problem with a lot of the peripheral European economies is they need lower government bond yields," he said, pointing to perilously high levels of Italian and Spanish bonds.
"Overall higher borrowing costs, lower growth and austerity are not a good mix for the European economies and they're going to find it very hard going."
US Federal Reserve Open Markets Committee minutes this week showed only 4 of the voting members favoured more stimulus, Bell said.
"It's another negative for the New Zealand dollar and global equity markets are looking sluggish as well," he said.
The Bank of Japan also held back on more stimulus, although Bell said he expected the central bank would eventually have to act to contain a surging yen.
"No one wants a strong currency in this day and age, but with these safe haven currency flows investors are buying currencies despite the fact they pay no yield and their economies aren't all that attractive, but it's a relative story."
US, German and Japanese bond yields hit record lows this week.
"It's all about preservation of capital and right now people aren't concerned about the returns they get on their capital. If anything there's more concern we're entering some kind of deflationary cycle that could be quite negative for everyone," he said.
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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.