Opinion: Wild daily volatility does not disguise downtrend

Television news gave the plunging Kiwi dollar top billing in their coverage last Friday as it dived two cents on the day to below 0.6600. The Kiwi has since rebounded back up those very same two cents to above 0.6800 as profit-taking in USD currency trading directly impacts on the Kiwi. They call it a roller-coaster ride and it is certainly living up to that label. No-one claimed the Kiwi downtrend would be a tidy and orderly affair, the jagged price action is par for the course and is not too surprising. Japanese-based margin traders were "stopped-out" of JPY/NZD positions once 75.00 was broken causing wholesale selling into a tiny NZD market. Added to that were massive volumes of JPY/NZD carry-trades being unwound, the JPY strength against the USD last week was testimony to that change. We are still of the view that this week's Monetary Policy Statement, where the RBNZ will reinforce their commitment to returning monetary policy to neutral over coming months, will be negative for the Kiwi. Another negative GDP quarterly figure on the 26th of September will also weigh the Kiwi down in its own right. Standing back from the day-to-day hurly burly of the volatile global currency markets, the outlook for the NZD/USD still has to be firmly negative over coming months for the following unchanged reasons:- - The NZ economy is in recession, - Interest rates are going lower and the gap to US interest rates is closing-up, - Japanese investors are attracted elsewhere and are unwinding out of NZ investments, - Lower commodity prices are very negative for the AUD, - NZ fund managers are reducing hedging percentages on international equity portfolios i.e. selling NZD's as they unwind bought NZD hedge contracts. ------------------ *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.