Opinion: The Kiwi shows resilience in the face of adversity

By Roger J Kerr The Kiwi's resilience to stay above 0.5000 over this last week has endorsed my views that maybe most of the negative news is already well priced-in to the currency value in the low 0.5000's. The credit rating "negative watch" report from S & P, together with the current account deficit "news" were on the surface major negatives for the Kiwi dollar, yet there has been no real speculative selling as a result. That confirms to me that foreign investors, traders and speculators have absolutely no interest in New Zealand, or our currency at this time. To be sure, there are no buyers either, so we are buffeted along each day with AUD and general USD currency shifts. Credit rating agency, Moody's was somewhat more positive last week on the position and health of the NZ economy vis-à-vis the rest of the world. Over coming weeks until the 12 March RBNZ Monetary Policy Statement the Kiwi will be driven by AUD/USD movements, therefore the direction of hard commodity prices will be more prominent in determining day-to-day movements. There are early signs that the free-fall in many of those metal and mining prices is nearing an end, with some stability returning. Another strong argument in support of the view that the NZD/USD exchange rate will end this down-trend at 0.5000, and not 0.4000, is the relative position against the TWI value. When the TWI was last at 52 in 2000/2001 the NZD/USD rate was 0.4000. The difference today is that the USD itself is not as strong as it was 9 years ago, and the Euro, Yen and AUD are stronger against the USD. These movements have driven the TWI back to its record lows. It would require a major surge in the USD value against the EUR and Yen to cause a 0.4000 NZD/USD exchange rate. I don't see that happening anytime soon. As time travels on the prospect of separate and individual New Zealand factors forcing the Kiwi down on its own are diminishing. When it is seen that the NZ economy is moving out of recession ahead of most others, the Kiwi will regain some favour and some buyers. ------------ *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