Kiwi Grounded on Wheeler Hinting at Intervention
Comment of the Day

July 25 2014

Commentary by Eoin Treacy

Kiwi Grounded on Wheeler Hinting at Intervention

This article by Kristine Aquino for Bloomberg may be of interest to subscribers. Here is a section: 

The RBNZ was able to change tack on interest rates after a July 16 report showed consumer prices rose more slowly in the second quarter than economists predicted.

Annual inflation quickened to 1.6 percent, from 1.5 percent in the previous period and compared with a 1.8 percent forecast in a Bloomberg survey. Dairy prices have also fallen. Exports, which become more expensive as a currency strengthens, slumped to a five-month low in June.

“With the exchange rate yet to adjust to weakening commodity prices, the level of the New Zealand dollar is unjustified and unsustainable and there is potential for a significant fall,” Wheeler said yesterday.

Daniel Martin, an economist at Capital Economics Asia Pte in Singapore, said the RBNZ is in no rush to resume rate increases.

“The latest downturn in economic data, along with the persistent strength of the New Zealand dollar, have provided some cause for caution,” Martin said yesterday in an e-mailed note to clients. “For now, there is little urgency to hike again.”

Eoin Treacy's view

The Australian Dollar tested the lower side of its long-term range against the New Zealand Dollar last year following a steep decline. A$1.05 has offered support on a large number of occasions since at least 1988. 

The relative strength of the Kiwi over the same period is becoming a liability as milk prices ease and there is ample potential for the Australian Dollar to outperform over the medium-term. 
 

 

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