NZD Corporate FX Update
The NZD’s trend over recent months has looked ominous, with fresh lows made in May, July, August and September. The most recent low near 0.6500 came ahead of President Trump’s decision on further Chinese import tariffs, a threat that has overhung the NZD over the past couple of months. In the event, the more moderate than expected 10% tariff rate to be imposed on a further $200b of Chinese imports was less than half of the possible 25% mooted, and this has provided some near-term support for the NZD.
NZD Hedging: The end of the “free lunch”
The gap between NZ and US interest rates has been on a declining trend over the past four years to the point where NZ rates have now settled below US rates across the yield curve. This has implications for exporters, importers and local fund managers as they think about their hedging requirements. It also has implications for the outlook for the NZD itself, as low rates act as a depressing force; and for speculators, who now get positive carry from short NZD positions.
NZD: Long term value emerging vs USD
NZD/USD has fallen as much as 10% this year, with a steady decline from mid-April through to mid-August. While the NZD has performed better over the last couple of weeks we think it’s an appropriate time to ask the question: in a longer-term context, has the NZD overshot fair-value to the downside?
NZD Corporate FX Update
Global and domestic forces have recently driven the NZD down to a 2½-year low. Globally, the persistent downward pressure on emerging market currencies has spilled over into a weaker NZD. A stronger USD, escalating US-China trade tensions, and concern about the global growth outlook, amongst other factors, have been in play. Domestically, business confidence has fallen to a decade-low, other activity indicators have softened and the RBNZ has adopted a more dovish-than-expected policy stance.
NZD: At the whim of DJ Trump
The more dovish than expected RBNZ Statement today caused a notable fall in the NZD but we don’t see small changes in the monetary policy outlook as a key driver of currencies at present – apart from today (!) where one-sided positioning in the rates market and technical factors for the currency have exacerbated the market reaction. Our focus is directly on the US-China trade war that appears to be escalating.
NZD 1H18 Review and Outlook
With the first half of the year over it’s an appropriate time to reflect on what’s gone on and the outlook for the rest of the year and beyond. The chart below shows the performance of the NZD on all the key crosses over the first half of the year. The NZD saw a broadly based fall, with the largest falls against the USD and JPY and little change against other commodity currencies like the AUD and CAD.