HiFX's Dan Bell reviews the week's global currencies action, including worries about a hard landing in China and NZ's weak GDP growth

By Bernard Hickey

Here's my weekly 'Never a Dull Moment' chat with HiFX senior dealer Dan Bell about currencies and markets action in the week that's gone and the week ahead.

We started off talking about figures showing a contraction in China's factory output in March, which increased fears the world's fastest growing economy may be about to have a hard landing rather than a soft landing.

A hard landing, with growth of 5% of lower, would hit Australia and New Zealand hardest, given our collective reliance on Chinese demand for our exports over the last five years.

"China has been the new Greece this week," said Bell, referring to Thursday's surprisingly weak HSBC-Markit's flash PMI (Purchasing Managers' Index) for March in China showing a fifth month consecutive of contraction and comments from Australian mining giant BHP about slowing demand for iron ore from China.

The New Zealand dollar was under pressure throughout the week as a result, he said, although it had found support around 80.5 USc.

"China is a the big focus at the moment and the New Zealand and Australian economies are heavily exposed," Bell said.

US and European stocks fell this week too on concerns about Chinese growth and debt in Europe.

European financial markets also began to worry again in particular about Spain's economic contraction and its high budget deficit and borrowing.

"There are a number of smart analysts and economists out there starting to suggest that Spain is a big risk to the European Monetary Union, and a risk that Spain may potentially have to exit the euro given that its economy is really suffering under the conditions of the EU's austerity measures, and we're seeing these bond yields starting to pick up again," Bell said.

"All that money that the European Central Bank gave the banks to help prop up these European sovereigns has done its job for a while, but now the focus is back on the fundamentals and looking where these economies are going to get growth from," he said, pointing to the pressure from deleveraging and high bond yields for countries in Southern Europe.

NZ GDP weak

Weak GDP growth in New Zealand in the fourth quarter was also a factor for local markets this week.

"It shows you that it's pretty sluggish out there and pretty patchy," he said, pointing to slow global growth despite historically low interest rates.

"We're probably holding up over 80 USc in the short term, but it looks to me there's more downside risk over the coming weeks as investors start to price in more risk," he said.

The risk of a hard landing in China was overdone, but markets had yet to price the potential effects of a slowing Chinese economy into the New Zealand dollar's value, he said.

Markets would watch two speeches next week by US Federal Reserve Chairman Ben Bernanke, Bell noted.

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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.