How low can it go? Kiwi dollar faces sixth straight week of slippage
The New Zealand dollar has dropped like a stone in the wake of worsening world trade tensions.
International wire service Bloomberg said both the kiwi and aussie were set to record their sixth straight week of losses against the US dollar on the back of fears that the trade war could stymie world growth and affect the commodity-based currencies.
The kiwi last traded at just over US63c, having dropped by 7 per cent since July.
“It’s more of the same — concern about the commodity growth outlook,” BNZ senior markets strategist Jason Wong said.
He said the kiwi and weakening Chinese yuan had been “joined at the hip” since the trade war erupted last year. Last month’s surprise 50 basis point rate cut from the Reserve Bank had also helped to knock it back.
The Reserve Bank is widely expected to cut again in November to 0.75 per cent and market expectations are that the rate will drop to just half a per cent next year.
Currency dealers said the kiwi had effortlessly fallen through what was seen as key support level of US65c, and just as easily breezed through the next support of US64c.
Wong sees more downside risk for it through to the end of the year.
Ultimately he put it down to the China-US trade war and its negative implications for world economic growth.
“If Trump capitulated and said ‘let’s get talking again’, the kiwi would be up by US2c in a flash.”
While good news for exporters — who stand to receive more NZ dollars when they repatriate export receipts from aboard, the kiwi’s dive makes imports more expensive.
“It’s not good for NZ Inc to see our purchasing power fall like that,” Wong said. The kiwi put in a particularly poor showing in August, when it did worse than the yuan.
Since February, the currency has dropped by more than US6c, or 8.7 per cent, against the US dollar.
The BNZ slashed its NZ dollar forecasts when it became clear any US-China trade deal was unlikely to be agreed over the foreseeable future, following Trump’s planned raising of punitive Chinese import tariffs.
Since then, a further round of titfor-tat tariffs has emerged, raising fears about world growth and still lower interest rates.
Wong said based on the tight link between NZ dollar and the yuan, the kiwi could gravitate towards a fairvalue range of 0.60-0.63.