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Kiwi- End of the Run?

Last updated 10/29/2009 4:48 AM ET (GMT -5) 6 Comments

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Boris Schlossberg

Director of Currency Research, GFT

The RBNZ left its rates unchanged at 2.5% as expected but issued a relatively dovish statement that suggested it will not consider tightening monetary policy in the foreseeable future. Although the central bank switched its bias from easing to neutral, it  went out of its way to state that rates are likely to remain stationary.

In the accompanying release Governor Bollard noted that, “"In contrast to market pricing, we see no urgency to begin withdrawing monetary policy stimulus, and we expect to keep the OCR at the current level until the second half of 2010." As a result expectations of rate hike in January of 2010 dropped from 100% prior to the release to a merely 6% in post news reaction.

Aside from the appreciating value of the kiwi, which the RBNZ views as a de facto tightening dynamic, another reason for the cautious attitude of central bankers in Wellington maybe due to the realization  that growth in the New Zealand economy is slowing. As we pointed out yesterday, the troubling decline in the NBNZ business confidence survey – the first since December of 2007 - suggests that the recovery may be running out of steam.

After initial selloff the kiwi rebounded above .7250 as currency traders bet that the RBNZ will be forced to hike rates sooner rather than later, especially in light of much tighter policy from RBA. However, if markets see further evidence that global economic recovery is beginning to weaken, risk aversion flows could take kiwi back below .7000 over the next several weeks.

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Comments (6)

hsbc

October 29, 2009 at 05:54 AM ET

what do u think of aussie, mate?

bschlossberg

October 29, 2009 at 06:22 AM ET

No opinion here but .9000 seems key

ozen

October 29, 2009 at 06:01 AM ET

hi Boris
what is the likely impact of the Fed asset purchase coming to an end?

Arturas

October 29, 2009 at 06:19 AM ET

Another financial crisis... We all know that Bernanke knows how to print money, but does he have any idea how he'll withraw those cash out of the markets? Inflation, deficits, taxes, expensive commondities... God Bless Poor Dollar

bschlossberg

October 29, 2009 at 10:00 AM ET

It may raise rates and US yields

hsbc

October 29, 2009 at 09:38 AM ET

u cannot blame the weak usd on bernanke. if anything greenspan is the one who pumped excess liquidity into the mkt in the first place. and who told him to do it? yup your reckneck bush.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.