The Kiwi – Aussie exchange rate has
made another attempt to break down through the support that existed just below
the 1.05 level since early last year. This move has a sense of purpose about
it.
The situation with the currencies is
a reflection of the economic contrast between the two neighbouring antipodean
countries. Both of them are significant producers of globally traded
commodities, and both of them have, in the past, seen China as the most
important client for their produce. The Chinese market is now contracting on
all fronts (Let us hope, for all our sakes, that this contraction is being
well-managed by the Chinese authorities).
Important as those factors are
however, the currencies just might be responding more to the global unwinding
of the Carry Trade (where investors borrow in low-interest rate environments
and effectively lend in jurisdiction that have higher core interest rates) than
being affected by their respective economic management. This unwinding is as a
result of the ending of Quantitative Easing in the US. That it is having a
greater impact on the Aussie dollar than the Kiwi might be down to no more than
the fact that the latter economy is so much smaller, and therefore requires
less in the way of global cash movements to keep its currency high. In both
cases, the fiscal and monetary authorities are very much on the ball, and have
kept their economies buzzing nicely through thick and thin in the years gone
by.
Central
bankers look to the USD
While the person in the street in New
Zealand might look on currency movements in the same way as they regard a rugby
match with their neighbours (every additional cent that strengthens the Kiwi
against the Aussie is as good as a try for the All Blacks against Australia),
their central bank chief, Graeme Wheeler, has a different outlook. His concern
is with the competitiveness of New Zealand’s exports.
While many of these do indeed go to
Oz, they are also destined for other overseas markets, and yes, still to China.
In these cases they are priced in US dollars. So, much as they will want to
hold down the Kiwi against the Aussie, it is far more important that it is made
to fall against the Greenback. The Reserve Bank of New Zealand (RBNZ) has shown
in the past that it is prepared to intervene directly in the Forex markets in
order to bring this about.
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