Kiwi down below .8100 vs. USD

The Kiwi continued to tumble in currency markets as a plummeting Aussie dollar dragged it lower and a swing back towards the US dollar also drove selling of NZD. It appears the markets are trying to buy back the US dollars that it had previously sold as the likes of Japan and soon Switzerland, print more money than the US. There is also the increasing prospect that the US Fed will be the first Central Bank to stop buying Government Bonds as they wind down their QE program towards the end of the year. So with potentially less US dollars coming, traders are reversing earlier bets.

New Zealand exporters that just two weeks ago were looking at rates close to .8600, can now hedge at levels close to .8000 vs. the USD or even below for longer term hedges. This will provide a welcome boost to late season receipts and help establish more favourable hedging levels for next summer. The Kiwi is now at its lowest level since the Greek debt related sell-off in markets last May, so it has been a long wait for exporters. The Kiwi has lost ground across the curve, dropping back below .8300 vs. the Aussie dollar and below .6300 and .5300 vs. the Euro and Pound respectively.

The week ahead will focus on Federal Reserve meeting minutes as well as testimony from Ben Bernanke to US politicians. The markets will be scrutinising both for signs of that early exit from QE. Also in focus, will be the Bank of Japan meeting. The BOJ have been very successful in devaluing the Yen, but they have also seen long term interest rates spike up dramatically. This has the potential to push up the overall borrowing costs for the massively indebted Japanese Government, who really cannot afford higher interest costs.