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Disastrous public policy management in the US and Europe has seen the New Zealand dollar end July at ridiculous levels.
It has been pushed higher against the US dollar, the euro, and the British currency to levels not seen since the NZ$ was floated in March 1985.
It has also pushed up over 80 Australian cents for the first time since August 2010.
The NZ dollar came within a whisker of 88 US cents as the US$ weakened following worse than expected growth figures for the June quarter, and a warning from President Barack Obama that the US could lose its AAA credit rating if it did not sort out its debt ceiling and deficit reduction negotiations.
Some exchange rate charts have the Kiwi touching 88 US cents early Saturday morning, while others show a highs of 87.94 to 87.99 USc just after 7am New Zealand time after rising from as low as 86.21 USc just after midnight - a rise of 180 basis points over seven hours.
Economic growth figures in the US showed initial estimates of GDP rising 1.3% in the June quarter, versus expectations of 1.8% growth. Perhaps a bigger surprise was the US Commerce Department's downward revision of first quarter growth from 1.9% to 0.4%. See more here at Bloomberg.
Those figures were followed by comments from the US President that America was in danger of losing its AAA credit rating.
"The power to solve this is in our hands on a day when we've been reminded how fragile the economy already is," the Telegraph reported Obama saying.
"If we do not come to an agreement, we could lose our country's triple-A credit rating...because we did not have a triple-A political system to match," Obama said.
US policymakers have struggled to resolve their deadlock, and it now looks completely unlikely it will sorted by August 2, 2011 (Wednesday in New Zealand).
EU uncertainty, eyes turn to Denmark's banks
In Europe, Spain faces a possible downgrade by Moody's. They have warned today that as well as its own dire economic problems, that country is also especially vulnerable to the knock-on impact of the EU's €160bln Greek bail-out.
See more on the possible Spanish downgrade here at Bloomberg.
Adding to European uncertainty are reports that a 'northern front' may break out soon, with eyes on Denmark's banks. One CDS analyst noted the following:
Scandinavia is having its own affliction today, with Denmark the source of the ailment. The country’s spreads have widened 15bp today to 88bp, meaning that its spreads have doubled over the course of July. S&P’s report yesterday on Danish banks, in which it said that up to 15 institutions could default, sent a shiver through the market.
The problems of the Danish bank industry aren’t new; 11 have failed since 2008. But the approach taken by the Danish government to bank failures is different from anywhere else. It removed a general government guarantee to the industry in 2010, vowing to protect taxpayers and make shareholders and bondholders share the burden of failed banks. This has much to commend it from a social equity point of view; Irish taxpayers, for one, might wish that their government had chosen such a route. But it hasn’t been tested by a large bank collapsing. Is there a Danish bank too big to fail? We may find out if bad loans keep rising.
Only the Japanese yen is holding its own.
Gold is up sharply, closing at US$1,628.50/oz in London, but that is more a reflection of the US dollar's decline. The oil price and the Dow headed sideways - "holding its breath" - as confusion mounts ahead of a deeply flawed vote in the US House of Representatives on a Republican debt plan.
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"There is no market at the moment, there are only sellers. It's utterly dysfunctional. It's looking really horrid across the street," said one London-based bond trader.
A City analyst, who asked not to be named, said: "Bond trading since the beginning of the year has been tough but in the last two months volumes have collapsed. My guess is job cuts will begin in September."
It is understood that at some bulge-bracket investment banks in June alone, trading fell so sharply, down as much as 25pc to 30pc year-on-year in some cases, that senior directors were forced to inform the Financial Services Authority.
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