Currency Talk: Aussie political uncertainty pushes kiwi up
The kiwi dollar continues its stellar run as the global economic scene becomes murkier.
The New Zealand dollar rose above 77 points on the trade-weighted index this morning – now at a 13 month high – following more uncertainty in Australia.
The Aussie election, which has still not produced a clear result, caused the Aussie dollar to weaken, Westpac senior market strategist Imre Speizer tells Currency Talk.
“The possibility of a hung parliament would be a very bad outcome for financial markets and the economy because an inconclusive political situation would be taken badly by the rating agencies.”
He says the likes of Standard and Poor’s (S&P) could well change its outlook for Australia’s AAA from stable to negative.
“That would be significant for Australia and the Aussie dollar. I think, in response to that, the Aussie dollar would fall against the kiwi.”
A credit rating gives investors insight into the level of risk associated with a country – the higher the credit rating, the lower the risk.
The kiwi dollar has risen more than 3c against the Aussie since early June, climbing to just over 96Ac yesterday.
Mr Speizer says the likelihood of the kiwi/Aussie cross moving to parity has increased after the election result.
Both New Zealand's Reserve Bank (RBNZ) and the Reserve Bank of Australia (RBA) have forecast at least one more official cash rate cut in the next few months.
But Mr Speizer says the market might react more to the RBA cutting because, at its last meeting, it has a relatively neutral guidance and didn’t give any indication of where rates would go.
“This week, I think the RBA will switch back to an explicit easing bias – indicating more OCR cuts are on the way – and we think that will devalue the Aussie dollar, and then again when they do cut the OCR to 1.5%.”