Is Kiwi Losing Commodity-Currency Status? By Nicholas Hastings
We could be about to watch the kiwi crash and burn.
For weeks now, the New Zealand currency has been cashing in like most other commodity currencies on the prospects of a global recovery.
The upward ride hasn't been smooth, especially with Chinese growth slowing down and the U.S. economy showing signs of faltering.
But the general theme has been similar for New Zealand, Australia and Canada: their economies are recovering, their interest rates are rising and, as long as investor appetite for risk remains high, their dollars remain attractive.
This week, however, the kiwi found itself tumbling to the bottom of the economic greasy pole.
While the New Zealand dollar may still be able to hang on to gains against the U.S. dollar-- if fears of monetary easing in the U.S. continue to increase--it now looks set to suffer both against its Australian and Canadian counterparts as investors factor in the outlook for the New Zealand economy failing to live up to expectations.
The negative news has been building gradually over the last week or two. With economic data repeatedly disappointing on the downside, Reserve Bank of New Zealand Governor Alan Bollard has been trying to scale back expectations of rate increases.
However, the extent of the disappointment wasn't driven home until Thursday, when the government released data showing that unemployment jumped up all the way to 6.8% from 6.0%.
Not only did this lead to an instant re-rating of the New Zealand economy but it also erased any hopes that the RBNZ will increase rates again next week.
The unemployment numbers were particularly damaging as they came at the end of a week in which Australia had been celebrating a record trade surplus that showed extensive export growth.
This proved that even if its domestic economy were to flounder, export demand would keep growth on track, unlike the growth of its smaller antipodean neighbour.
As strategists at Societe Generale SA said, where once their policy was go "long antipodeans," it is now just to go long aussie.
How badly the kiwi suffers against the U.S. dollar will probably depend very much on U.S. rate expectations. However, the New Zealand currency could still find some support as long as New Zealand rates are still expected to rise before those in the U.S.
Its performance against the other commodity currencies is likely to be more certain as investors start to differentiate among the factors that drive the different commodity economies.
How far the kiwi will be pushed remains to be seen but some are now forecasting that the aussie's next stop will be up at NZD1.28.
See how far the kiwi has already fallen against the aussie:
Early Friday in Europe, the Australian dollar was up at NZD1.2595 at 0645 GMT. The aussie dollar had also been able to rise to $0.9169 from $0.9158 late on Thursday in New York, according to EBS, while the kiwi slipped to $0.7287 from $0.7302.
The kiwi failed to benefit from a general improvement in market sentiment that helped the euro to rise to $1.3197 from $1.3186 and to Y113.63 from Y113.16. The dollar was also up at Y86.12 from Y85.74 as the market waits for the latest U.S. payrolls data later in the day.
Bloomberg TNI FRX POV
Reuters USD/DJ
Thomson P/1066 or P/1074
(Nick Hastings has covered the foreign exchange markets and industry for over 20 years. Apart from his written commentary and analysis, he also appears on Fox Business News and CNBC television in Europe, Asia and the U.S. He can be contacted on +44-20-7842-9493 or by email: nick.hastings@dowjones.com)
For weeks now, the New Zealand currency has been cashing in like most other commodity currencies on the prospects of a global recovery.
The upward ride hasn't been smooth, especially with Chinese growth slowing down and the U.S. economy showing signs of faltering.
But the general theme has been similar for New Zealand, Australia and Canada: their economies are recovering, their interest rates are rising and, as long as investor appetite for risk remains high, their dollars remain attractive.
This week, however, the kiwi found itself tumbling to the bottom of the economic greasy pole.
While the New Zealand dollar may still be able to hang on to gains against the U.S. dollar-- if fears of monetary easing in the U.S. continue to increase--it now looks set to suffer both against its Australian and Canadian counterparts as investors factor in the outlook for the New Zealand economy failing to live up to expectations.
The negative news has been building gradually over the last week or two. With economic data repeatedly disappointing on the downside, Reserve Bank of New Zealand Governor Alan Bollard has been trying to scale back expectations of rate increases.
However, the extent of the disappointment wasn't driven home until Thursday, when the government released data showing that unemployment jumped up all the way to 6.8% from 6.0%.
Not only did this lead to an instant re-rating of the New Zealand economy but it also erased any hopes that the RBNZ will increase rates again next week.
The unemployment numbers were particularly damaging as they came at the end of a week in which Australia had been celebrating a record trade surplus that showed extensive export growth.
This proved that even if its domestic economy were to flounder, export demand would keep growth on track, unlike the growth of its smaller antipodean neighbour.
As strategists at Societe Generale SA said, where once their policy was go "long antipodeans," it is now just to go long aussie.
How badly the kiwi suffers against the U.S. dollar will probably depend very much on U.S. rate expectations. However, the New Zealand currency could still find some support as long as New Zealand rates are still expected to rise before those in the U.S.
Its performance against the other commodity currencies is likely to be more certain as investors start to differentiate among the factors that drive the different commodity economies.
How far the kiwi will be pushed remains to be seen but some are now forecasting that the aussie's next stop will be up at NZD1.28.
See how far the kiwi has already fallen against the aussie:
Early Friday in Europe, the Australian dollar was up at NZD1.2595 at 0645 GMT. The aussie dollar had also been able to rise to $0.9169 from $0.9158 late on Thursday in New York, according to EBS, while the kiwi slipped to $0.7287 from $0.7302.
The kiwi failed to benefit from a general improvement in market sentiment that helped the euro to rise to $1.3197 from $1.3186 and to Y113.63 from Y113.16. The dollar was also up at Y86.12 from Y85.74 as the market waits for the latest U.S. payrolls data later in the day.
Bloomberg TNI FRX POV
Reuters USD/DJ
Thomson P/1066 or P/1074
(Nick Hastings has covered the foreign exchange markets and industry for over 20 years. Apart from his written commentary and analysis, he also appears on Fox Business News and CNBC television in Europe, Asia and the U.S. He can be contacted on +44-20-7842-9493 or by email: nick.hastings@dowjones.com)
- 6 August |
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