Opinion: Kiwi downtrend again disrupted by rising AUD and commodity prices

By Roger J Kerr The lower NZD/AUD cross-rate to 0.7780 does confirm that the Kiwi currency is under-performing the AUD against the USD. However the economic and commodity price news has boosted the AUD once again in the global forex markets to above 0.9000 over recent days, and this in turn is keeping the NZD/USD at 0.7000 for the meantime. Three conditions occurring together were always necessary for the Kiwi to make a concerted push below 0.7000 to 0.6800 and lower:- 1. A stronger USD against the EUR This is now very much in train with the EUR weakening from $1.50 to $1.35 over recent months. The economic and investment market outlook in Europe has deteriorated with the Greek sovereign debt crisis highlighting the risks. The EUR/USD exchange rate is headed to $1.30 and $1.25 over coming weeks/months as investment flows and currency traders shy away from Europe.

2. Interest rates in New Zealand staying "lower for longer" as the economy makes a slow recovery in 2010 This is definitely happening. New Zealand interest rates being 1.5% to 2.0% below Australia's is already dissuading Uridashi and Euro-Kiwi bond investors from re-investing in NZD's, the resultant net selling is a continuing negative for the Kiwi. 3. The AUD weakening against the USD as commodity prices correct down in 2010 from their large gains in 2009 This is not happening as I anticipated. I was hopeful that the Chinese monetary tightening last month would cause more of a permanent correction downwards in commodity prices. The CRB Commodities index is back up to 277 with recent Iran geo-political factors lifting the crude oil price back to $80 barrel. The CRB Index needs to be reversing to 260 and 250 before the AUD (and thus NZD) loose ground against the USD. Exporters to Australia who sell in AUD's have the opportunity to lock-into long-term hedge contracts at spot rates below 0.7800. Most AUD exporters make excellent profits below 0.8000, so it makes real sense to secure these rates for the medium to long term. In nine months time the Aussie will have completed their increase in interest rates to normal levels and we would have just started that adjustment. The NZD/AUD cross-rate would be expected to be travelling well above 0.8000 again when that happens. Exporters to Australia have a very attractive window of opportunity to secure future profits over coming weeks/months. "”"”"”"”"”- * Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com