By Dan Bell
The NZD/USD opens around 0.8340 this morning down 150 points from yesterday’s opening levels.
The NZD came under pressure yesterday afternoon after RBNZ Governor Wheeler said the NZD is significantly overvalued compared to its economic fundamentals.
In a speech to the New Zealand Manufacturers and Exporters Association the Governor suggested a wide range of policy responses to lowering the NZD but emphasised there are no quick fixes.
After looking at the speech again this morning I get the feeling the market has over reacted and focused on the potential for ‘intervention’ when this was more of an academic discussion.
The Kiwi extended its losses overnight after risk asset came under pressure with most stock markets and commodities down overnight- the S&P 500 is currently down 0.59%.
The NZD opens at current indicative mid rates: 0.8140 AUD, 0.5480 GBP, 0.6284 EUR, 78.34 JPY, 0.8492 CAD.
The FOMC minutes released this morning showed that a number of voting members are concerned about the Fed’s stimulus measures although no change appears imminent.
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Dan Bell is the senior currency strategist at HiFX in Auckland. You can contact him here
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2 Comments
Is it possible that many traders actually share the RBNZ view that the NZD is significantly overvalued against any fundamentals, but have been riding the chart to a top, not wanting to get off? If so, is it then likely that such traders would be very nervous about missing the top; and suddenly finding themselves holding NZD say 3-5% below the top on the way down? If I were such a trader I might be sufficiently nervous at any suggestion that the NZD should go down, (such as Wheeler's speech, and modest threat of action) that I would get off the train at that point. And if there were enough such traders, their collective actions could be self reinforcing.
Time will tell. My simple understanding of charts is that the NZD is now right on an upwards trendline on the USD chart. If it breaks below that trendline, then it might well keep going lower at least to 82.5c. If the NZD respects the trendline, then it may well bounce back up.
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