Roger J Kerr says offshore investors now have a completely changed perception of the NZ economy and are now prioritising Australia

Roger J Kerr says offshore investors now have a completely changed perception of the NZ economy and are now prioritising Australia

 By Roger J Kerr

It is both highly instructive and very telling that the NZ dollar has been unable to attract the international safe-haven investment flows from an uncertain Europe that has pushed the Australian dollar higher over this last week.

Global investors now have an entirely different perception of the NZ dollar and the NZ economy compared to 2013 and early this year when the Kiwi dollar was favoured by them over the Australian counterpart.

The NZD/AUD cross-rate climbed dramatically from 0.8000 to 0.9400 as a result over that period.

The opposite is now occurring.

The Aussie dollar, assisted by their sovereign AAA credit rating has been a major beneficiary of funds exiting the Euro over recent weeks.

The change in heart towards the NZ dollar by the international investment community cannot be attributed to one factor and as always it is a combination of variables that has turned the sentiment and direction negative for the Kiwi:

- The price of our largest export commodity, wholemilk powder has collapsed since March, confirming how dependent the economy is on dairy and volatile demand gyrations of the Chinese buyers. The price reductions have removed over $4 billion of export receipts from the economy over the next 12 months compared to the last 12 months. The downturn in Australian mining/resources occurred much earlier and has stabilised over the last six months.

- The RBNZ altered their message substantially from the early June monetary policy statement to the late July OCR review date where they put interest rate increase on “pause” and jawboned the currency down far more effectively. The threat of central bank intervention in a minor currency is sometimes an invitation to hedge funds to speculate against that central bank. However, on this occasion the overlay of tumbling dairy prices and the proximity of the general election on 20 September dissuaded the FX traders to play with the Kiwi dollar.

- Political risk has not been a major influencing factor on the Kiwi dollar since the fundamental shifts in monetary and fiscal policy in the late 1980’s/early 1990’s. Despite expectations by us in the financial markets that the new Labour Government in 1999 would dial back the earlier free-market reforms, they did not do so and Finance Minister Michael Cullen maintained the integrity of the policies and the economy prospered.

The current lack of investor interest in the Kiwi dollar is partly due to the risk (albeit a reasonably low risk) of a Labour/Greens coalition government being formed in 12 days that would fundamentally change the independence and operating objectives of the RBNZ. Most would see the NZ dollar depreciating on such an outcome and overseas investors pull their money. An alternative messy election night result of NZ First Party leader Winston Peters holding the cards as to who he might (or might not) form a government with would also be destabilising for the currency markets.

A clear-cut victory for the National Party to govern alone or with the support of Maori, Act and the Conservatives would be seen as NZ dollar positive.

- The carry-trade investors who came into the NZ dollar at 0.8500 and 0.8600 after the June RBNZ monetary policy statement were expected to bail-out of the Kiwi on a break below the 200-day moving average at 0.8450. The disinvestment related selling has transpired as anticipated with the Kiwi falling rapidly from 0.8450 to below 0.8300 last week.

The forecast and outlook for the NZD/USD remains for further weakness to 0.8000 due to the stronger USD value globally and the factors listed above continuing to attract NZD sellers over buyers. 


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Roger J Kerr is a partner at PwC. 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

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Just returned from the land of skippy and noted that they are starting to make the same sorts of comments about foreign property purchases, so while they may be a bit behind us in their concern, I think that they will end up with a similar stance to us.  Fundamentally they are far more parocial and nationalistic than us, so in the long run they are more likely introduce barriers than us and if they did that the New Zealand would be very quickly sold off without similar restraints.

One characteristic that is never mentioned, and I suspect it is number 1 on the totem-pole for consideration by safe-haven currency players - is this
Australia still has in place it's government bank guarantee of $250,000 per bank account, per deposit-taking institution, while New Zealand does not, it has OBR
In my assessment, while there is the risk of any geopolitical turmoil on the horizon (Ukraine, Russia, Crimea, Nato, Iraq, Syria, IS) the betting is the money will flow into Australia first, and any hot-money sitting in NZ will flow out of NZ and into Australia
There are approximately 12 deposit-taking institutions, which, with a bit of leg-work de-risks $6 million per customer
I rank that above any on Roger Kerr's list of items

still thinking there's plenty of bears in them woods... waiting to pounce when the goings good, and investors are tiptoeing hoping that someone else will get caught first...

The NZD is way above its average exchange rate against the AUD of the past 10 years and still close to its all-time highs e.g. against the EUR.
While Roger is discussing probabilities for a couple of cents here or there, we should not forget that only 5 years ago the NZD was at its record low towards the EUR.
NZ still has safe haven appeal, mostly to those who do not know much about the country plus plenty of carry trading scope. If carry traders would really quit we would be back at the 2009 levels quickly. And that will simply not happen as long as there is near world-wide zero interest policy and massive money printing.

EUR (solo, not pair) has been pressing downwards quite hard ever since the greek/pigs trageties, so it's not surprising that we're looking at getting near historical highs.

5 or 6 years ago, many people were toting to Euro as the great new saviour, to be a member of the elite group you had to prove your country was wealthy and well managed with sturdy banking.  Large Bribes^h^h^h^h commitment funds, were created to prove this.  Those pools of wealth created an expensive EUR, but since trade (internal and external) and commercial issues haven't been solved then operations have just devalued their holdings.

EUR is still not far from historical highs to the world's leading currency, the USD, even after a concerted devaluing by Italian Goldman-Sachser Draghi and his ilk. 
And I guarantee you that this situation has no connection to houses in New Zealand. 
NZD has been a good if unlikely investment in the past years and I assume it will stay that way for a few years to come. For lack of alternatives. Good for all the elderly kiwis roaming around Mediterranean cruise ships :-)

:)  The FED with their QE managed to push the USD way down.

Considering the unions trying to get into the US fastfood workplaces at the moment, I'm a mildly surprised the news we're hearing from the US is so financially up-beat,  does this mean they're adjusting for the Chinese pressure of earlier this year?

I can't work out why the world allows a few self serving currency traders decide what various currencies are worth. I just do not think that money should be a commodity, fullstop!

if it's not a fungible commodity, how could it work?
and since it's not usable for anything else but as currency token for other resources, how could be anything but a commodity?  It is the lowest denominator

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