Currency traders’ bad year gets worse

Looming Fed policy decision making it harder for speculators to predict the actions of other central banks

December is turning into a cruel month for traders counting on cuts in interest rates to drive down currencies.

New Zealand’s dollar jumped the most since November after central bank chief Graeme Wheeler delivered the policy easing that economists had predicted without the promise of further reductions. That came less just a week after his European counterpart, Mario Draghi, sparked the euro’s biggest rally since 2009 by unveiling a smaller-thananticipated stimulus package.

The elephant in the room is the Federal Reserve. Its looming policy decision is making it harder for speculators to predict the actions of other central banks and to work out where exchange rates are headed. As with the euro, strategists are now reassessing forecasts for the kiwi, becoming less certain how far it can extend this year’s 13 per cent drop, which is already the steepest since 2008.

“Investors are clearly finding it harder to read central banks,” said Mansour Mohiuddin, senior markets strategist at Royal Bank of Scotland Group Plc in Singapore. “Central banks are all hoping the Fed’s imminent tightening will weaken their domestic currencies against the greenback, so they’re holding back on meeting the market’s expectations for further easing.”

The Parker Global Currency Manager Index, which tracks programmes that aim to profit from exchange-rate moves, has lost 0.7 per cent this month to extend its slide in 2015 to 2.7 per cent. That would be the worst annual decline since 2011.

Falling short

For New Zealand dollar bears, Reserve Bank Governor Wheeler didn’t go far enough when he cut the official cash rate by a quarter-percentage point to 2.5 per cent, completing the reversal of the four increases in 2014. They