Kiwi down on US jobs, French & Greek elections

The Kiwi starts the day down just over 1.0% vs. the USD after US jobs data Friday night came in below expectations and France and Greece Elections have seen voters swing to the left, away from austerity.

Friday night’s jobs data for the US showed a gain of 115,000 jobs in April, below the 160,000 expected. The unemployment rate actually dropped one notch from 8.2% to 8.1% as people dropped out of the workforce. This is the opposite to the NZ data last Thursday, which saw a rise in the NZ unemployment rate as more people were looking for work. The news from the US triggered a risk off move, with currencies, commodities and shares all dropping.

The Kiwi lost further ground in the move to risk off and starts the day down in the low .7900 area vs. the USD. This drop will be a welcome boost to exporters and the country with a good portion of the summers export receipts yet to be converted back into NZD.

In Europe, there was a broad swing to the left in France and Greece as voters showed their displeasure at endless austerity measures. The news has already prompted a response from the European Commission, who said that they will look at a pro-growth pact that tries to balance fiscal restraint with more growth friendly policies. They will also look at allowing countries more time to reach their deficit reduction targets.

The Euro has dropped about 0.50 cents vs. the USD in early trading this morning, but as today’s graph shows, the interest rate advantage is firmly in the USD’s favour based on the German/US 2 year interest rates. This yield advantage suggests the Euro should be some 4-5 cents lower than it currently is. We still expect the ECB to cut the cash rate from 1.0% to 0.50% in the next few months to help boost growth across Europe. Given the election results, more cheap funding for European banks could also be on the way to bolster the financial system.

So here we are, in another risk sell-off that takes the Kiwi down to exporter friendly levels at a time when New Zealand looks like a good place to hold your money with a stable Government, steady growth and a flexible exchange rate.

The declining yield points to the EUR falling further