fxmatters

The NZD showed outright weakness last week, falling against the other 37 currencies monitored here. Several factors have been blamed including lower global share prices and lower dairy prices (although not for 2010 deliveries). While tempting to extrapolate the NZD weakness forward, it should be recalled that the NZD has been the weakest of the 38 currencies in 8 weeks from the last three years but was lower one month later only three times. As always, recent changes are not necessarily good predictors of future exchange rate movements.

Local news this week are likely to be more upbeat, including improving business confidence and more house sales (but a still flat retail sector). Globally it will probably be the G8 meeting July 8-10th that commands attention, particularly the issue of a replacement reserve currency for the USD. Any radical change seems unlikely in the current environment, and more likely soothing words will be expressed when Presidents Obama and Hu have a sideline meeting.

In other words, markets remain at a crossroads. The biggest near-term risk appears to be of further share market weakness, and hence a lower NZD, especially with the backdrop of a weak NZ economy and maturing Uridashis.