Bernard Hickey talks with HiFX Senior Dealer Dan Bell about the week's currencies moves, including the New Zealand dollar's rise to a post-float high of 82.6 USc and fresh signs of a slowing US economy.
They also look ahead to next week's central bank interest rate decisions, including from Reserve Bank of New Zealand, the Reserve Bank of Australia, the European Central Bank and the Bank of England.
Weak US economic data dominated this week, including slower jobs growth and a significant fall in the US stock market.
"A lot of this negative sentiment had been building for a while," Bell said,.
"The last few months of high commodity prices, particularly high petrol prices, are having an impact, and also the flow-on effect of the Japanese earthquake is coming through in that data," he said.
US jobs growth of 54,000 in May was less than a third of economists' forecasts and unemployment rose to 9.1%. The Dow fell a further 0.8% on Friday night to extend its losing streak to the longest since 2004. See more here at Bloomberg.
Bell said he was sceptical about the prospect of a third round of Quantitative Easing from the US Federal Reserve in response to the recent slowing of the world's largest economy.
He pointed to some significant structural problems in the US economy, including falls in house prices and the effects of negative equity on the labour markets, discouraging home owners from moving for new jobs.
Bell said the New Zealand dollar was likely to stay higher while the US dollar was so weak, US interest rates were near 0% and commodity prices were high.
"It points to more highs in the short term for the New Zealand dollar against the US, likewise for the Aussie vs the US," he said.
ECB rates on hold?
Looking ahead to next week, Bell said markets would watch the European Central Bank's decision closely, with some signs its earlier tightening bias may be softened with growth so weak on the peripheries of Europe.
The Bank of England also faces a decision on interest rates as it struggles to deal with inflationary pressures and a slow economy.
The New Zealand dollar hit a post float high over 50p this weak.
RBA, RBNZ decisions
Underlying strength in first quarter GDP data in Australia and firm retail sales meant there was still a chance of a rate hike in Australia on Tuesday, but many still expected the RBA to wait until July.
"If you look at the most accurate forecasters in Australia they're calling for a rate hike in July," Bell said.
An earlier hike would weaken the New Zealand dollar vs the Australian dollar.
The Reserve Bank releases its June quarter Monetary Policy Statement on Thursday and is expected to leave rates on hold.
However, it is expected to comment in some form on the strength in the New Zealand dollar.
Bell said he did not expect the RBNZ to intervene to push the New Zealand dollar lower.
"I don't think it's justified. The last time the RBNZ intervened we were at a different stage," he said, pointing out that the Trade Weighted Index was 10% higher and commodity prices were relatively lower when the RBNZ last intervened to drag the currency lower.
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.