Rocky Road ahead for NZD

11.06 NZST, Wednesday 26 September 2012

Rocky Road ahead for NZD

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

The Kiwi's short found stardom over US 83c looks to be over as it becomes implicitly entangled with risk as a consequence due to the deepening European crisis and fears that global stimulus will not satisfy the world’s largest economy. On overseas speculative interest the Kiwi looked set to retest Monday morning's 0.8290 open before falling away sharply 60pts consolidating 0.8215 support.

Expect a tumultuous road for global growth assets ahead of the US general election and the continual taunting of a 'will they or wont they' full blown Euro crisis. It doesn't help alleviate fears of a global meltdown considering the recent two and a half year low German IFO and the pain in Spain's escalating austerity crisis, a result of their growing belligerence in failing to answer Germany's request for a formal bailout.

Cracks are beginning to deepen and patience is certainly running out. The wake of 'steamship QE3' has all but settled and perhaps not held the desired effect of calming a disruptive market as the FED may have hoped for. 'I scratch your back and you scratch mine' was the implied global reserve bank effect sending initial buoyancy and resolve to a jittery market. But it is clear now after a tired and beat ECB battling many fronts to include Greece, Portugal and a possible Catalan independence threat, that not even the mightiest economy can push for similar stimulus requests of European economic growth. Thus we've seen risk removed from markets, most notably high yield currencies and Brent Crude under US $110 barrel.

Locally the high NZD is proving to be a major headache for dairy magnate Fonterra, New Zealand's largest exporter. With a robust dollar over 80c profit forecasts may need to be revised yet again asking the question of a reserve bank intervention or a lowering of the OCR. The answer there is most likely a stern 'no' after 2007's short lived effect. The Kiwi may be sold off to a certain degree and match its risk ratio but considering our stable economic situation as compared to overseas don't expect to see it under US 78c anytime soon.

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