By Roger J Kerr
Is the heavy buying of NZ dollars that boosted the NZD/USD rate from 0.7800 to 0.8200 last week, 'hyped-up hot air' that could reverse just as quick, or real and permanent capital inflows?
My gut feel is the former as I do not see the rumoured $6 billion of Chinese investment funds turning up in NZ any day soon.
The speculative buyers will be keen to take their profits - that is, become sellers of NZD’s - when they realise that the real money is not materialising in the timeframe they expected.
The short-term FX market, however, may be keen to break the post-1985 float highs of 0.8215 recorded in mid-2008.
My view is that the latest bout of NZD strength to 0.8200 is unsustainable as the NZD/USD has de-linked over this last month from its main drivers (see charts below).
I expect the NZD to return to its close historical correlations; that is, retreat back to below 0.7800 in the short term and on to the low 0.7000’s within a few months.
Most of the lower NZD view is driven by a stronger USD view to below $1.4000 against the Euro over coming months. Domestically, the 'no downgrade' credit rating outcome and the greater likelihood of increasing NZ short-term interest rates later this year have to be seen as NZD positive whichever way you look at it.
The National Bank of NZ Business Confidence survey results tomorrow will also be positive with improving confidence levels.
On the other side, stronger than expected US Non-Farm Payroll employment figures on Friday will provide support for the USD itself.
The RBNZ’s Monetary Policy Statement next week on June 9th should again see Governor Bollard jaw-boning - if he is consistent - the Kiwi dollar downwards.
The RBNZ are again likely to be more dovish on the NZ economy than what the financial markets are currently signaling.
Historically, the NZD/USD exchange rate has never de-linked from its correlated drivers for very long. This time is no different.
--------------------
* 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
No chart with that title exists.
1 Comments
Roger, the Chinese have been buying our government bonds for some time so their money has been flowing in for a while.
http://www.interest.co.nz/news/53615/chinas-giant-sovereign-wealth-fund…
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.