With a potential tsunami about the hit the fiji/new zealand area. Would now be the right time to short kiwi/usd?
Maybe not a nail in the coffin but closing the differential between the rates I would think will be negative for the Kiwi. The A$/NZ$ crossrate moved strongly in favour of the A$ once the rate rise came through, however nobody really expected the Aussies to lift rates, so that move may have been more because of the shock value. With the Fed review next week , its probably 50:50 right now as to a 25 point rise in the US. If that happens, it will be in effect 2 rate rises going AGAINST the NZ$ within 7 days. If you had to pick a side of the fence to be sitting on, I think I would be on the bearish side. I think a lot of the traders here will be looking at that Fed meeting next week. Are you currency guys able to do options on the futures?
Got my flippers and goggles dude we'll be ok when da big one comes calling Even without a tsunami, you may be on the money with a short...
Thought you guys might be interested in this. It's a little light on the details, so I may track down the actual study: Kiwi dollar the most unstable - study 02 May 2006 Most exporters know that grappling with the volatility of the floating New Zealand dollar is a nightmare for their business and a study out today confirmed that. The kiwi dollar and the Japanese yen are joint winners of the world's "wobbliest currency award", according to researchers at Victoria University. Professor Roger Bowden and PhD student Jennifer Zhu investigated the variation of 13 major floating currencies since 1986, measuring all exchange rates off a common reference base. Both the kiwi and the yen had major variations in a cycle of about seven years. The New Zealand dollar nearly doubled in value from a low of under US39c in late 2000 to nearly US74c last year. By contrast, the Australian dollar was the world's third most stable currency in all bands, though the United States dollar was among the less stable. The Singapore dollar was the most stable, followed by the Norwegian Crown. Prof Bowden said the analysis showed the difficulties New Zealand business had faced and the conclusion re-raised the issue of whether New Zealand should pursue monetary union with Australia. "It shows what Kiwi exporters and importers have had to put up with over the years compared to their competitors across the Tasman. "We were surprised at the stability of the aussie dollar and it reinforces our findings from another study that Australian shares have been an excellent stocking filler for NZ investors, in terms of the stability they provide to the portfolio." The new findings come at a time when monetary policy in New Zealand is under the microscope with Treasury, the Reserve Bank and the Government looking for new "tools" that could help improve monetary policy control. Prof Bowden said there was a fear that the exchange rate had become the major defacto policy tool with more direct instruments, such as interest rates, less effective. He said the study raised afresh the issue of whether a common currency with Australia would help. "One thing you can be sure of though, is the Reserve Bank will not be in favour of monetary union with Australia because they will be out of business." He said under inflation targeting guidelines, the Reserve Bank often raised interest rates at the wrong time and the currency rose inappropriately as a consequence. "It's that effect on exports that gives them a lot of concern. "Defacto, the real monetary controlling instrument is not the interest rate as such, it's the exchange rate." "There is little doubt that inflation rate targeting has a role in exacerbating and making the exchange rate cycle worse." He did not believe the instability would go away any time soon. Prof Bowden said people had to understand that these "partly predictable" cycles were a reality and firms exposed to medium term currency swings should put in place active programmes of hedging and risk management. http://www.stuff.co.nz/stuff/0,2106,3655264a13,00.html
Yea read this article too. I guess this is why it makes this currency so interesting for traders that use this thread. Plenty of swings. I have to agree though that the use of interest rates as a club to try and beat down inflation is becoming less effective and that is the dilemma for Bollard. However any other forms of intervention would have unforseen consequences, which is why they have backed off looking for additional "tools". The exchange rate is the leveller in this country.
I was suprised however to read that they think the Aussie is so stable. It may not have such a big range as the Kiwi but man it does seem to whipsaw.
I guess from an economics perspective, they're only concerned with the long term "stability". The combined Aussie/NZ currency idea has been bandied about for so long and yet it never seems to be taken seriously. Although, since floating the dollar the kiwi has starting swinging back and forth reasonably regularly, so I wonder if industry prefers to use that as an advantage by only investing in infrastructure at the optimum exchange rate then reaping the rewards a few years later when the rate swings back.
Not really.....businesses like stability of currency. Large currency fluctuations makes for expensive hedging if you are a large exporter like Fonterra. Small exporters normally don't hedge as it is too expensive so they ride the currency waves and it can make a big difference to their bottom line if they have a lot of international debtors say in US$ or Euros and the currency has a big swing against you. So a big move like we have just had in the past few months, although it helps exporters and hurts importers, they would all like to see the dollar trading in a tighter range.
Ok, so what's the call. All the technicals have been pointing to a lower move in the Kiwi, and the fundies certainly support one. But it just keeps hangin' on... It's following the USD broader moves I know. I still think the future points down. One more move by the Fed is in the bag. The question is whether or not a second move is coming, and it's beginning to look more and more like it is.
I think you have to view it negatively right now. Normally I am a bit of a contrarian, but there are overwhelming factors building up against the Kiwi$. Telecom, the largest stock down here and owned internationally by institutions, was down overnite in NY by 10% as the govt regulated to force it to unbundle their monopoly on copper wire services. I suspect smaller international investors will continue to offload the stock which will in effect take funds out of the Kiwi. The rest of the market was given a thumping as well when it opened down here, as other big stocks felt the heat. OK, agreed, it may not be a huge amount in the scheme of things, but compound that with these other factors plus the expected rate rise in the US next week... the Kiwi$ is getting a lot of negative press this week. It might be at the point where the bulls that are left just throw the towel in and let the bears bash it around a bit. There is a lot of support for the Kiwi vs A$ at the 83 cent mark but not a lot under that, gotta go back a long way. NZ$/US$ - you would not at all be surprised if it went back and tested those lower levels around 61-62, would you? This article was published here this morning http://www.nzherald.co.nz/section/story.cfm?c_id=3&ObjectID=10380186