Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Yield attraction will continue to support the Kiwi

Yield attraction will continue to support the Kiwi.


By Garry Dean (Sales Trader, CMC Markets New Zealand)

The hawkish tone of last week’s RBNZ Monetary Policy Statement surprised a number of market analysts, and resulted in an explosive rally in the Kiwi to 0.8700. To varying degrees, most analysts were expecting the forecast track of the 90-day bank bill rate to reflect a decrease in the number of OCR increases going forward, but the bank’s profile remained largely unchanged from March. Much has been made of the collapse in dairy prices over the past four months, and with Governor Wheeler addressing the disparity between the elevated Kiwi and falling commodity prices in a speech in early May, there was a belief by some that he may pause rate hikes after June to take some heat out of the Kiwi. However, with immigration numbers surging, the Bank highlighted the pressures this is placing on sectors of the economy, and considered it appropriate for rates to move to a more neutral level. They did note that economic data going forward would be taken into consideration when assessing monetary conditions, and they even introduced a range of fan charts to simulate forecasts under different scenarios.

With interest rates globally at historic lows, it wasn’t surprising to see offshore retail investors in search of yield driving the Kiwi higher. A sharp increase in offshore retail investment has been seen in the Aussie recently, with the recent stimulus measures from the ECB fuelling the move even further, and this has flowed through to the Kiwi in turn. The medium-term risk for the currency remains to the topside, with resistance seen initially at 0.8745, before 0.8780 – the highs reached before the RBNZ threatened intervention on the 6th May. Support is seen on any short term retracement to 0.8645.

It’s hard to see just what will take the heat out of the Kiwi at present. News of escalating conflicts in Iraq and Ukraine have caused a spike in oil prices, and lifted gold prices, but there hasn’t been the normal risk aversion move in the Kiwi that would normally be associated with these increasing tensions. With central banks globally increasing their investments in equity markets, we have seen the US markets continue to consolidate just below all-time highs, with the VIX Index of Volatility remaining near historically low levels. The US FOMC meeting on Wednesday night is the key event for the week, with the market largely expecting a further $10 bio taper to the FED’s bond purchase programme. There has been a growing belief that some FOMC Members may be contemplating the prospect of bringing forward the timing of interest rate increases, and any confirmation of this would strengthen the USD, thus counteracting the strength of the Kiwi. Bank of England Governor Carney has indicated that rates there will likely increase sooner than the market had expected, and this has seen the GBP trade to near 5-year highs on Monday night. A move toward a less stimulatory monetary stance from these central banks would be an important step in limiting the rise of the Kiwi, but for the moment it remains well supported, and further upside is favoured.

ends

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Half Empty: Fonterra's 2017 Opening Forecast Below Expectations

Fonterra Cooperative Group raised its forecast farmgate milk payout for next season by less than expected as the world's largest dairy exporter predicts lower prices will crimp production and supply will pick up. The New Zealand dollar fell. More>>

ALSO:

Pest Control: Mouse Blitz Team Leaves For Antipodes

The Million Dollar Mouse project to rid Antipodes Island of mice is underway with the departure of a rodent eradication team to the remote nature reserve and World Heritage Area. More>>

Gongs Got: Canon Media Awards & NZ Radio Awards Happen

Radio NZ: RNZ website The Wireless, which is co-funded by NZ On Air, was named best website, while Toby Manhire and Toby Morris won the best opinion general writing section for their weekly column on rnz.co.nz and Tess McClure won the best junior feature writer section. More>>

ALSO:

Pre-Budget: Debt Focus Risks Losing Opportunity To Stoke Economy

The Treasury is likely to upgrade its forecasts for economic growth in Budget 2016 next week but Finance Minister Bill English has already signalled that more of his focus is on debt repayment than on fiscal stimulus or tax cuts... More>>

ALSO:

Fulton Hogan's Heroes: Managing Director Nick Miller Resigns

Fulton Hogan managing director Nick Miller will leave the privately owned construction company after seven years in charge. The Dunedin-based company has kicked off a search for a replacement, and Miller will stay on at the helm until March next year, or until a successor has been appointed and a transition period completed. More>>

ALSO:

Gordon Campbell: On Electricity, Executions, And Bob Dylan

The Electricity Authority has unveiled the final version of its pricing plan for electricity transmission. This will change the way transmission prices (which comprise about 10% of the average power bill) are computed, and will add hundreds of dollars a year to power bills for many ordinary consumers. More>>

ALSO:

Half Empty: Fonterra NZ, Australia Milk Collection Drops In Season

Fonterra Cooperative Group says milk collection is down in New Zealand and Australia, its two largest markets, in the first 11 months of the season during a period of weak dairy prices. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news