Kiwi at six-month high as QE3 weighs on greenback
BUSINESSDESK: The New Zealand dollar hit a six-month high in local trading after the Federal Reserve's programme to print more money weighed on the greenback while stoking a rally in global equity markets.
The kiwi rose to 83.45 US cents at 5pm in Wellington from 83 cents at 8am and 82.19 cents yesterday and is heading for a 2.8% weekly gain against the greenback.
The trade-weighted index rose to 73.67 from 72.86 yesterday, and is heading for a weekly gain of 2.2%.
Stocks across Asia followed US and European markets higher after Fed chairman Ben Bernanke unveiled an open-ended plan to buy $40 billion of mortgage-backed securities a month in a bid to revive flagging growth in the world's biggest economy.
Asia-wide sentiment was bolstered after Standard & Poor's upgraded South Korea's sovereign credit rating one notch to A-plus amid easing political tensions with its neighbours.
Australia's S&P/ASX 200 index was up 1.3% in afternoon trading, Japan's Nikkei 225 index gained 2.1%, Hong Kong's Hang Seng index was up 2.7% and Korea's Kopsi index advanced 2.8%.
"The kiwi is standing in front of a freight train at the moment," says Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. "The kiwi did quite a lot of work between 83 and 84 US cents and there's quite strong resistance there."
The currency's strength comes a day after the Reserve Bank kept the official cash rate at 2.5% and pushed out its forecast track for the 90-day bank bill rate, seen as a proxy for the benchmark interest rate.
The Bank of Korea unexpectedly kept its seven-day repurchase rate at 3% yesterday and Bank Indonesia also held its reference rate unchanged at a record-low 5.75%.
The kiwi climbed to 932.5 Korean won from 927.3 won yesterday, and advanced to 7952.19 Indonesian rupiahs from 7873.12.
It rose to 78.84 Australian cents from 78.39 cents yesterday and to 51.49 British pence from 50.97 pence. It climbed to 64.04 euro cents from 63.55 cents and advanced to 64.75 yen from 63.85 yen yesterday.
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Comments and questions2
The economists are all very quiet , aren't they?
Bernanke's announcement is of little significance?
Some do not think that :-
ZeroHedge says:
“There is one big problem with the Fed’s announcement of Open-Ended QE moments ago: it effectively removes all future suspense from FOMC announcements.
Why?
Because the Fed has as of this moment exposed its cards for all to see from here until the moment it has to start tightening the money supply (which may or may not happen; frankly we don’t think the Fed tightens until hyperinflation sets in at which point what the Fed does is meaningless).
It means easing is now effectively priced into infinity. . . . . going forward there is no surprise factor to any and all future FOMC decisions . . . . It also means that Bernanke may have well fired his last bullet, and it, sadly, is all downhill from here, as soaring input costs crush margins, regardless of what revenues do, and send corporate cash flow to zero.
Unfortunately, not even in the New Normal can companies operate without cash flow.”
The end of the beginning, or the beginning of the end?
“I think the country should have panicked over what the Fed is saying, that we have lost control and the only thing we have left is massively creating new money out of thin air, which has not worked before, and is not going to work this time.”
Ron Paul.
"is it the end of the beginning, or the beginning of the end?"
well in the NZ context for the manufacturing sector it is clearly the beginning of the end, the only question left is when will the last productive factory that is exporting close its doors, is it Christmas this year or winter next year?
Stephen Joyce and John Key both said "too bad, who cares" this week - so its all over for the manufacturers
In the context of the farming sector with $40b + debt most accumulated to fund (keep in business) our key industry as the economic business case for NZ farming failed in 2008. Banks have funded farming deficites on a wish and hope for a "better year next year"
For farming it is the end of the beginning - next year will be a bad, bad year for farmers!! the numbers didn't work at 75 cents they surely can't at 84 cents
Farmers will survive because the country can't let then fail, at some point Billie boy English will have to pull some levers to keep them farming, that is the only sure outcome here.
the question is when and what form will it take? then and only then will the panic in this country set in, panic focussed on the wrong sector for the wrong reasons and almost certainly too late for the wider economic engine.