HiFX's senior dealer Dan Bell and Bernard Hickey looked in their weekly 'Never a Dull moment' review at the New Zealand dollar's slide through 76 USc to a six month low as global investors take 'risk off' the table and get out of riskier currencies such as the New Zealand dollar.
The New Zealand dollar hit a low of 75.2 USc on Friday night.
"It's falling out of the sky literally," he said, pointing to the latest election results in Greece and France sparking the latest bout of risk aversion globally.
The New Zealand dollar had also fallen 12% vs the euro recent weeks, despite all the talk about a euro breakup and a slowdown in the euro-zone economy.
"When investors want to take risk off the table -- and a lot of offshore investors hold the NZ dollar to get a little bit of extra yield -- when they want to get their money back into safe haven currencies, the NZ dollar is much less liquid then these larger currencies," he said.
"When they push the sell button, and everyone pushes the sell button at the same time, we drop quicker than everybody else."
Stabilisation?
The New Zealand dollar had stabilised somewhat over the weekend and on Monday as the euro bounced off its lows against the US dollar of US$1.2650 towards US$1.28.
"We're seeing a little bit of a bounce," he said. "There is an argument for a near term correction here. We're seeing this negative sentiment weigh on the New Zealand dollar and it wouldn't surprise me to see a bit of a correction at some stage."
Chinese slowdown?
Bell pointed to a slowdown in China's housing market as a factor in weakness in demand for commodities such as copper, which was a worry for commodity-linked currencies such as Australia and New Zealand.
"The Chinese slowdown is well and truly happening. It remains to be seen whether we see a hard landing or a soft landing scenario," he said.
Greek elections
Financial markets would be watching the European situation closely ahead of fresh Greek elections on June 17.
Locally, the focus would be on the Reserve Bank's June quarter monetary policy statement due on June 14, the Government's Budget on Thursday and Fonterra's new payout forecast on Wednesday.
To subscribe to our free daily Currency Rate Sheet and News email, enter your email address here.
---------------------------------------------------------
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.
No chart with that title exists.
1 Comments
This post below, which I just posted elsewhere, hopefully is deemed relevant to this article:
On fair value, which in my opinion is reflected in the current account (which of course remains in a very significant and unsustainable deficit), the NZ dollar remains at least 20% overvalued against most currencies.
Since the end of 2008, when coincidentally the Nats came in, the NZ Dollar has appreciated by 22% against the GB Pound, 25% against both the USD and the Euro. Only against the Aussie have we depreciated- by 12%. (The Aussies have more fundamentals to back their rise, although also are too high for their own good in my opinion). All of these figures are after the recent devaluation, so have been worse for much of the 3 years. We have blown, Greece like, all the extra value implied in this inflated currency
The first 3 countries/ areas have aggressively managed their exchange rates to maintain their competitiveness; including by printing money.
We have maintained a high dollar by borrowing massively offshore; or selling assets. Any suggestion it is high because of economic fundamentals is absolute b**locks. Apart from dairy prices coming off, just maybe the financial world realises the NZD is not a currency you wish to hold when the music stops, which just could be very soon, given we no longer own anything useful that is not mortgaged to the hilt.
Assuming we do wish to own something useful over time, we should be celebrating a small recent drop, and looking for more. I'm guessing the Nats and Reserve Bank do actually realise this, but are hoping they can keep fooling everyone for another three years.
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.