Panic is fading
It appears that the panic has passed, although one cannot be sure. The massive government support to money markets now has bank risk measures such as the LIBOR premium to official rates trending down. The intervention by some governments in the currency markets helped turned the upward JPY and downward AUD trends around.
The policy adjustment continues this week with the RBA (today) and the BOE and ECB (Thursday) expected to cut their target interest rates by another 0.5% (see current official rates).
Again no certainties, but exchange rates such as the USD/JPY under 95, the AUD/USD below 64, the NZD/USD below 56 and the NZD/AUD above 91 now look like over-shooting. The USD/JPY rate in particular is likely to remain above 90 yen (although the 1995 yen surge did get near 80). Of local significance, it is this JPY buying and inter-related AUD selling that has been the strong driving force for the NZD.
This leads to thinking about where the NZD will settle after the panic (not that exchange rates ever truly settle). The RBA decision today could be pivotal. The RBA Deputy Governor Battellino was last week playing up the prospects for the Australian economy, and playing down the need for large rate cuts beyond today. The combination of less panicked markets and less certainty around future RBA rate cuts is likely to see the AUD/USD back above 70c, and hence the NZD/USD trading in the 60-65c range.
