fxmatters

The standout trend at present remains volatility, not necessarily any one currency direction. The NZD/USD jump of 6.4% last week resulted from the sharpest weekly drop in the USD since 1985, in turn the response to the US Fed’s commitment to continued “quantitative easing“. Unfortunately Japan is already doing likewise and Europe may yet go down that path also, so the US policy announcement need not be a harbinger of a widespread exit from USD to either JPY or EUR (the other two major currencies).

At this stage, the best that can be said is that the USD remains within a very broad, sideways pattern that could easily take the NZD/USD to 60c again, and then back to 50c once more.

Any immediate NZD rally may seem perverse when a 1% (or more) drop in NZ December quarter GDP will be announced Friday (see Calendar) but even a drop of this magnitude is less than that experienced in the UK, EU and US and pales beside the recent experiences of some Asian economies. In other words, the NZ situation is tough but it is worse elsewhere.

As always, there are forces pulling in different directions. The higher local interest rates (see Futures) and NZD exchange rates since the 12-Mar Monetary Policy Statement may elicit another easing by the RBNZ 30-Apr. The RBA are very likely to lower their cash rate 7-Apr. These forces will tend to push the NZD/AUD higher near-term but more generally push the NZD downwards in the next few weeks. But these pressures will be secondary to the USD trend. The key driving forces for currencies remain international.