Commodity slump drives demand from NZD

11.11 NZST, Wednesday 29 August 2012

Commodity slump drives demand from NZD

By Andrew May (Sales Trader, CMC Markets New Zealand)

The NZD has continued to hold its head above US80c, despite weathering hurricanes both financially and physically around the globe as investors tread with caution around volatile markets tentatively removing risk from the table.

We open today down 40pts to 0.8040 as NZ dairy magnate Fonterra overnight cut its 2013 forecast payout to farmers by 25c to $5.25kg. Fonterra citied the effect of the strong NZD on recent gains to commodity prices globally. This was made all the more apparent to the growth driven currency with renewed fears that China has a one way ticket to a harsh economic landing. It is clear that our second largest trading nation's slowdown crisis is deepening.

This simply reiterates cause and effect to risk and the NZD. The RBNZ will not revise rates anytime soon and we're looking at 2014 being the bare minimum. However the New Zealand Government has remarked it is deeply concerned at the strength of the high Kiwi but may have 'thrown in the towel' citing we may just have to learn to live with it. Perhaps get used to a high 'Kiwi' over US75c for the next 18 months.

Elsewhere markets have reacted with fear to the record high prices of oil and the ensuing drought conditions in the US. President Barrack Obama is thought to be releasing oil from America’s strategic reserves in an attempt to contain prices. This combined with the worst drought in 50 years could seriously impede global economic recovery. So now we wait for the key central bank meetings over the next two weeks starting with this Friday's Jackson Hole central bankers gathering. Could this finally be the end of continual Bernanke rhetoric promises of a third round of QE, and perhaps discussions of implementation and delivery? After last night’s dreary US consumer confidence numbers sooner might be better than later.

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