Fear of Grexit send Kiwi tumbling

16 May 2012

Fear of Grexit send Kiwi tumbling

By Andrew May (Sales Trader, CMC Markets New Zealand)

An uncertain Euro economic outcome continues to hammer the Kiwi dollar into hiding. Investors are spooked, greenback bulls are returning in their droves and we're fully witnessing risk off the table.

The NZDUSD fell 110pts to test new lows of 0.7681 overnight as a barrage of local and international data oppressed the local currency. Fear and contagion led the consensus over Greece's ability to pay back its burdening debts and the growing instability if any government can be formed.

Over 700mio euros were withdrawn from Greek banks alone this past Monday. Greek Depositors are incredibly anxious about a true devaluation of their hard earned cash should Greece exit the Euro and the national currency - the drachma, return. As a consequence German 10 year bonds dropped to a record low 1.46% as investors sought safety in German banks.

In stark contrast, Italian and Spanish bonds rose to 6.03% and 6.36% consecutively indicating a direct correlation to the massive shifts of cash away from Southern European banks. All doesn't seem well in the Union.

However in saying that, we also witnessed a thoroughfare or influx of monies into both Australian and New Zealand 10 year government bonds pushing respective yields to all-time lows. We may be losing ground in the spot market, yet there is an intense proliferation for demand of high yielding off shore safe haven investments which show more bang for your buck than what's on offer in the States.

Investors are attracted to countries that confirm not only a stable government but a firm leadership at the helm. New Zealand's 2023 bond fell to a yield of 3.635%, much lower than the 4.2% hit during the GFC. This should keep weight in the sails of the NZD to keep her head above 75c for the medium term.

Yet overnight fundamentals were not kind to the Kiwi at all. We witnessed the DOW drop 1% over Eurozone jitters, Gold down to USD$1,544 oz, in-fact a total of 7% for May and another negative fall in the price of Fonterra's global milk price auction. The Trade weighted Index price slipped 6.4% for the third time in a row, a total of 41% in the last 12 months.

Until this uncertainty on the horizon starts to manifest into a solution, with investors in complete aversive nature, I see the Kiwi continuing to head south. Nov 2011 lows of 0.7395 is now easily on the draw cards. The question is not a matter of if; it’s a matter of when it will fall.

http://www.cmcmarkets.com/

ENDS

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