By Josh Ferry Woodard
The New Zealand Dollar got off to a slow start this week as risk appetite deteriorated on the back of negative global financial news. US President Barack Obama issued an aggressive statement aimed at Iranian leaders, stoking fears that the US could be heading towards another war in the Middle East. Risk sentiment took another blow when Spanish Prime Minister Mariano Rajoy announced that Spain will miss its budget deficit target for this year, leaders in the Netherlands had a similarly negative outlook for their growth plan. This fuelled the flames of discontent surrounding the Eurozone economy as a whole, suggesting that growth within the 17-nation bloc could be stunted even more than initially expected.
Global markets slowed down considerably and as a result the commodity-correlated currencies such as the Kiwi and the Aussie suffered from investors’ flights to safety. The New Zealand Dollar lost out to all of the majors at the beginning of the week:
The Pound to New Zealand Dollar Exchange Rate increased from 1.918 to 1.938.
The US Dollar to New Zealand Dollar Exchange Rate grew from 1.211 to 1.226.
And the Euro to New Zealand Dollar Exchange Rate rallied from 1.599 to 1.615.
The Kiwi’s decline continued following the reserve Bank of New Zealand’s decision to leave the official cash rate at its record low 2.5% – the interest rate was not expected to change but central bank governor Alan Bollard spoke of the potential risks to economic growth posed by the New Zealand Dollar’s appreciation in the foreign exchange market.
Bollard described the NZD’s current strength as ‘detrimental to the tradable sector, undermining GDP growth, and inhibiting rebalancing in the New Zealand economy’. He predicted the kiwi could negatively impact the manufacturing and tourism industries; his intentionally dovish tone seemed to have been successful in weakening the currency as the New Zealand Dollar continued to spiral downwards immediately following the announcement.
However within a few hours, investors ignored the governor’s negative rhetoric and the Kiwi rallied back up towards the rates at which the week commenced. Global sentiment seemed to relax a little on the news that the Greek PSI bond swap deal was making progress and the demand for the New Zealand Dollar picked up again.
Despite Bollard’s dovish speech the Kiwi looks to be in a strong position; if the Greek debt deal goes well tonight expect risk sentiment to improve and NZD could rally further.
The current Kiwi rates are (as of 10:51 GMT):
Pound to New Zealand Dollar Exchange Rate – 1.911
US Dollar to New Zealand Dollar Exchange Rate – 1.209
Euro to New Zealand Dollar Exchange Rate – 1.598