Risk off signifies Kiwi to potential slide lower

11.14 NZST, Wednesday 21 August 2013

Risk off signifies Kiwi to potential slide lower

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

The New Zealand dollar has found itself bandaged and broken after tumbling as much as 200pts against the Greenback and Euro and 130pts against the Great British Pound since Monday’s open. Composing itself to open today at US 0.7960, up from a low 0.7953, the Kiwi dollar has had to fight its way above a tumultuous fall from grace across major crosses as a combination of local and international head winds buffeted the growth currency.

The early week emerging market sell off as precursor left international investors to cautiously remove risk as US treasury yields toy with 3% ahead of a highly anticipated tapering mandate this Thursday when the US Federal Reserve release its July FOMC minutes.

It wasn’t the only spur in the heel for the Kiwi. Aussie RBA minutes indicated additional rate cuts are still on the cards. Yesterday’s announcement by RBNZ Governor Graeme Wheeler about high loan to Value restrictions (LVR) coming in October, saw the Kiwi immediately trade lower.

Full well expecting the RBNZ ‘check-mate’ move to quell the insatiable housing demand (or lack of) wasn’t so much the bone of contention, rather the accompanying language that did the damage to local swap yields and the NZD. In particular, Governor Wheeler’s comments that LVR limits will be used in place of OCR hikes and as a means of preventing currency strength. As you could imagine, this caught investors immensely off guard.

However we must remember the NZD is heavily resilient and has proven itself time and time again in bleak or otherwise stagnant periods or growth. We remain fully supported at 0.7950, 0.7850 and heavily entrenched at 0.7685. With inflation currently within the 1-3% target band, continual strong commodity prices and intensely competitive interest in state owned energy company sales, don’t expect the local currency to drop its guard just yet.
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