Summary of key points: -
- The Australian dollar breaks the shackles and posts impressive gains
- NZD/USD “converging wedge” formation highlights upside NZD risk
- New Zealand: “From envy of the world, to a laughing stock”
The Australian dollar breaks the shackles and posts impressive gains
Having visited the bottom end of the current trading range at 0.6880 against the USD on 6th October (immediately following the “dovish” RBNZ 0.25% OCR hike), the Kiwi dollar has posted strong gains to now test the upper end of the trading range at 0.7100.
However, it is not independent NZ dollar appreciation on specific and positive New Zealand-centric economic data that we are witnessing here. The higher NZD/USD rate is entirely due a marginally weaker USD against the Euro on global forex markets and more importantly on the Australian dollar breaking up above through key resistance levels at 0.7350 against the US dollar.
Our column has highlighted the case recently for a potentially strong rebound upwards in the Aussie dollar against the USD as it appeared to have reached an over-sold position at 0.7200, having depreciated consistently downwards from the 0.8000 level back in March. US dollar strength over that six month period, weaker Chinese economic data, Covid lockdowns and a turn lower in the key iron ore commodity price were all factors that justified a weaker AUD.
Adding to the propensity for a rapid AUD rebound was the fact the fund managers and hedge funds in the US had entered into very large “short-sold” AUD speculative positions in expectation of continuing AUD depreciation.
The events of the last few weeks have proven that the AUD selling is now exhausted and the punters holding short-sold AUD positions will be forced to buy back the AUD in large quantities to unwind.
Announcements by the Australian Government on the re-opening from lockdowns in Victoria and New South Wales which were conditional on threshold Covid vaccination rates being achieved (which have now been met) has added to the more positive sentiment towards the Australian economy and Aussie dollar over recent weeks.
The AUD always stood out as a currency that had been sold down over the first nine months of this year to a low point and therefore offered attractive entry points for global investors seeking an alternative currency to the USD to buy.
These investors and currency traders are now looking to reduce their weightings of US dollar assets and positions as they strategise ahead in the expectation that the USD will weaken in 2022 and 2023.
We have held the currency view for some time that all the positive USD news (tapering of QE from November to mid-2022 and interest rate increases in late 2022) will be fully built into the USD currency value by this time and from here the USD is likely to reverse to a weakening trend on the back of the large dual deficit problem the US economy has.
Global funds moving out of the USD, as they price-in the future 12 months ahead in time, are already pinpointing the AUD as a preferred major currency to be in.
There is a fair argument that the AUD cannot really appreciate until the Reserve Bank of Australia (“RBA”) change their stance on not lifting their interest rates until 2024.
The RBA have stuck to their guns that they will not increase interest rates until they see more permanent inflation trends from persistent increases in wages.
To date they have not seen the lift in wages, however the severe labour shortages that every western economy is currently experiencing must at some point in the next six months start to increase wages in Australia.
We are already seeing strikes at their ports, so the labour market pressure is building, and therefore the RBA may well be forced to relent at some point soon. When they do, the Aussie dollar will have another positive string to its bow.
NZD/USD “converging wedge” formation highlights upside NZD risk
The AUD/USD rate has climbed to 0.7425, which in turn has dragged the NZD/USD up to 0.7070. The evolving “converging wedge” chart formation for the NZD/USD trading pattern that we highlighted in our 3rd October column is now even more acute.
The NZD/USD dip to 0.6880 two weeks ago bouncing immediately back up from the rising support line. A movement above the current 0.7100 resistance point would suggest further gains for the NZD as the rate breaks above the down sloping resistance line.
Local USD exporters have had two bites at the cherry over recent times (at 0.6820 on 21 August and at 0.6880 in early October) to enter long-term hedging against the forecast general USD weakness in 2022. The USD exporters may not get another chance if the AUD makes further gains to 0.7500/0.7600 and the Kiwi dollar follows.
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*Roger J Kerr is Executive Chairman of Barrington Treasury Services NZ Limited. He has written commentaries on the NZ dollar since 1981.
34 Comments
The whole world is opening now, in many cases with vaccination levels below ours
It is time for this Government to stop a minority from holding almost 90% of the country to ransom. This is really starting to feel like North Korea. This is beyond a joke, this is an embarrassment. Time for our Dear Leader to get a grip on reality, and open the country now.
Ardern needs the 'unvaxxed' to blame when the medical system crumbles like it did in January when we had no Covid. She blew a $100 billion and didn't bother to increase health infrastructure or bring in medical staff.The 'unvaxxed' are politically very useful.
https://www.stuff.co.nz/national/health/300262252/new-zealand-hospitals…
https://www.stuff.co.nz/national/health/coronavirus/126608859/miqueue-h…
The government is still unrelenting in its obduracy and attendant obfuscation. They acknowledge finally, that Delta could eventually , reach each of us. Yet they still dawdle on two critical elements other nations have enlisted early to add protection. Firstly booster shots would be critical for the elderly and/or those with underlying respiratory complications. Secondly saliva testing, and especially self testing to enable early detection and intervention. The government is approaching bth of these in the same lax and pedestrian manner as they did the vaccines in the first place. They have learnt absolutely nothing. Caught with their pants down? Debagged well and truly , and they haven’t even bothered to hitch ‘em up again.
Like many my age I was vaccinated in June with booster in early July. From what I've read my max protection was ~95% at the end of July. In six months it will decline to ~55% so I'm probably somewhere in the middle now at about 75% protection. I'm living in Auckland where meeting someone with Covid-19 is possible and if it happens given my age and health issues I've a one in four chance of developing it and as a wild guess 50% chance of dying once I've caught it. So if Covid-19 was rampant today I'd have a one in eight chance of dying; fortunately it is not rampant today but it may well be by January when that one in eight will be a one in four. My bubble includes my wife who also has health issues so it will be a toss of a coin whether we both survive.
It would cost nothing for Jacinda to promise my wife and I a booster at some time in the future. She is missing the chance to do good PR. Which is not like her at all. Is she worried that admitting vaccination is not 100% effective and that immunity declines will discourage the unvaccinated?
They were talking about 3rd jab boosters for people like you on the news last night, I think it's a good idea too.
Meanwhile the good old WHO were having a moan about "rich" countries getting boosters, the WHO most be the most badly run and incompetent organizations I've ever seen, saying Africa should be getting more vaccines (even though the likes of the US has pledged them over a billion vaccines), but if you look at the rate of deaths etc around the world Africa by comparison has had extremely low numbers of deaths.
87% of adults in the UK catching covid are vaccinated. 80% of those dying with/from covid are vaccinated. By the time lockdown is lifted and covid starts to spread, half the population will be essentially "unvaccinated" again as immunity begins wearing off after 3 months, practically gone by six.
This is wrong.
From the relevant study: https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(21)0218…
Effectiveness against SARS-CoV-2 infections waned during the 6 months of this study. Effectiveness against hospital admissions in all age groups did not wane over the duration of the study.
So you are more likely to catch it, but it will most likely only be a mild infection.
This is completely untrue and dangerous. About two-thirds of Covid deaths in the UK are unvaccinated - and the vast majority of the deaths amongst the vaccinated are people who have not had their second dose yet.
The data is not hard to find if people want to 'do their own research'...
https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarr…
I thought Maori were top of the queue right from the start, I'm sure the government setup Maori health authorities very early on to be able to vaccinate Maori basically of any eligible age, while the rest of the population had to wait for their age groups to come up.
In the far North for example they had vaccination centres open that anyone could just walk into very early on, while the rest of the population was still at the over 65's stage.
Now we are being told it was all the governments fault and the iwis could have done it better, while the government threw 87 million specifically at getting Maori vaccinated, not an insignificant sum.
It's not hard to come to the conclusion that really nothing would have worked, and we are just reverting to type of blaming the government for everything, seems like a familiar depressing story really.
Alas can only agree. They have become celebrities and hooked on it. Trouble is though, as many forerunners in this bracket have discovered to their downfall, once a celebrity you find you can never be celebrated enough. A never ending line of higher hills awaits on the horizon.
They are trained to be effective communicators...
You appear to be annoyed that scientists have more influence than self interested business representatives (I'm assuming you would prefer this to be the case...)
I will also bet that New Zealand has the lowest covid-19 death rate for a reasonable population.
minor correction to the last few lines of the article:
A strong and decisive CEO of New Zealand Inc would be setting clear targets, action plans and milestones to re-open the borders, while respecting peoples rights to choose whether they should take an experimental vaccine with dubious efficacy.
Sadly, that will not happen, and the Ardern Government continues to restrict the freedoms and financial well-being of the majority.
Well said. The Labour govt failed to introduce vaccinations early enough and has failed to ramp up ICU staff capacity. The result is excessive lockdowns and a demoralised population. The (3rd) Labour minister of finance - Little - should be sacked like his two predecessors. Double vaccinated citizens are penalised by by being shut down to "save" the antivaxers who are the architects of their own pending covid risk.
There are myriad reasons for many people to have not been vaccinated yet...and only a relatively small portion of them are actually anti-vax.
That does not mean they should be sacrificed at the altar of the NZX50.
A threshold of at least 90%.. and definitely strong mandates. Only the rabid few will resist vaccination....as well as greater safety for those who cannot vaccinate for valid medical reasons
Roger, the tide has certainly gone out but I strongly disagree with you on what has been exposed.
What has been exposed is two segments of our population that have hitherto been largely below the waterline:
Firstly, a large demographic who are not educated at all let alone in basic scientific principles. I blame our lame education system for this.
Secondly, a smaller but now conspicuous demographic who may be educated in an extremely narrow field (e.g. law or commerce) but lack any education in the fundamentals of science and, further, have an overweening sense of entitlement that they are somehow special and therefore above the law.
Roger Kerr quoting Bloomberg as his authoritative source is the joke!
Bloomberg loses all credibility when they rank NZ so low in covid-19 safety compared to Ireland. Bloomberg (along with Kerr) appear to deeply resent what they would describe as a "socialist" government succeeding when right wing governments worldwide have failed so resoundingly.
1,380 cases of coronavirus were reported on Sunday in the Republic of Ireland (an island nation with a similar population to NZ).
The total number of deaths linked to Covid-19 in the Republic of Ireland since the start of the pandemic is 5,306.
There are myriad reasons for many people to have not been vaccinated yet...and only a relatively small portion of them are actually anti-vax.
That does not mean they should be sacrificed at the altar of the NZX50.
Those who insist on a lower vaccination rate (ie a date for lifting restrictions) need to remember that 80%+ immunisation has not been enough to stop measles outbreaks. A threshold of at least 90%.. and definitely strong mandates. Only the rabid few will resist vaccination, and there will also be greater safety for those who cannot vaccinate for valid medical reasons.
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