fxmatters

The massive response by governments to the global financial crisis continued last week with official rate cuts in Europe, UK, Switzerland and Australia – the later three including an element of surprise. There was also monetary loosening in China, and a huge fiscal package announced (detail). These policies have not yet stemmed the downward share price trend but there has been consolidation in the currency markets. This currency pattern is expected to persist, resulting in the AUD leading the NZD generally higher against other currencies in the near-term.

The US and NZ election results may be dominating media and public attention but they remain well down the order of influencing factors in the currency markets at present.

Longer-term it is difficult to foresee any quick, vigourous turnaround for the US and NZ economies, and hence weakness for both currencies is likely within the next six months. However a weak USD next year would limit the extent that the NZD/USD depreciates, adding to the appeal of forward buying of NZD/USD for medium-term exporters’ needs at present.