Dollar Trading Well after New Zealand Cuts Rates

Well, the RBNZ did the right thing last night (at least for Macro Man's portfolio!), cutting rates by 0.25% and suggesting that there's more easing in the pipeline....at least as there's no "excessive" exchange rate depreciation. Given that the last Monetary Policy Statement forecast a 10% or so decline in the TWI over the next couple of years, you'd have to posit that there should be a lot of room to the downside before NZD weakness gets "excessive." NZD/USD is butting up against decent support around 0.7385 or so, and it might be a bit of a tough ask to look for a break today. But when the level goes, expect the kiwi to drop like the flightless bird that it is.

Elsewhere, there's been quite a few key datapoints released since last night's New York close....a veritable data dump for the macro punter. It kicked off with Japan, where the trade surplus was literally off-the-charts low. What's interesting here is that export growth has really tailed off; y/y export growth is negative to the US, UK, EMU, and North Asia. As the chart below demonstrates, this could ultimately exert significant pressure on the yen to weaken.
In Europe, meanwhile, further evidence emerged that the economy is an egg that's just hit the brick wall of ECB tightening. The ifo, highlighted here as a good leading indicator of ECB policy, took another surprisingly large lurch lower this morning. The expectations component is the lowest since the last recession, and the disparity between the current conditions and expectations components is the widest since unification. Are you watching, M. Trichet?

In the UK, meanwhile, we had the release of June's retail sales, which showed a monthly record drop. Quite a coincidence, given that the previous month showed a record rise. Oi, ONS, here's a quid.....go buy a clue!

So the dollar is trading well, consolidating beyond the levels highlighted yesterday. Anything can happen over the next couple of days, of course....but Macro Man finds himself nursing an increasingly insistent urge to get bullish dollars as the other shoe starts to drop elsewhere in the world. He can only hope that his positioning doesn't end up in another sort of dump.

Comments

[OldLimey:]

Wasn't the US financial system supposed to be on the brink of meltdown 10 days ago? Amazing how a couple of negative surveys in Europe are made to look like the end of the world, whilst the toxic morass that is US banking now appears to be a rose garden. Am I being too sceptical here, or is a temporary reprieve for the USD the next bubble being talked up by the hedge funds to lure all us simple folk?

2008 Jul 24 02:28 PM

[Did U Think...:]

Just because foreign currencies are going to crap out DOES NOT MEAN the USD is worth the paper it's printed on. All fiat currencies working within fractional reserve banking systems are CRAP. Buy gold and just let all of this pass you by.

"Gold is money and nothing else is"
-J.P. morgan.

2008 Jul 25 01:10 AM

[Coelacanth:]

As a funny side note, apparently there's a lot of chatter that NZD/USD would be a lot lower by now if it weren't for "Japanese housewives & pensioners". LOL. Maybe so. If things get really bearish again or when Cullen makes those additional cuts this year, I think the NZD will "drop like the flightless bird that it is".

Those of you who are confounded by the dollar's recent strength it's important to understand that it's not so much the dollar appreciating against the euro as much as it's the euro losing some value against other currencies. It was very telling that despite yesterday's stock market rout.....the USD held up pretty well against the euro. Psychology is changing and it's becoming quite clear that the euro-zone may be in for a "hard landing" i.e. German & euro-zone June PMI reads below 50 indicating contraction, balloning trade deficit, falling French consumer spending, etc.

2008 Jul 25 10:29 AM

[kiwi trader:]

NZD is a rate game for the japs , they seem to be moving over to AUDJPY. We need a decent 500+ point fall on the dow for the carry trade to really cover, a major us bank going would do it.

all countries with current account deficiets will try to devalue there currency as much as possible (in a steady way) to export there way out of this mess.

if all central banks keep cutting like the RBNZ it then becomes a relative economic news play.

I can see the RBNZ cutting 200 points at least to even get to neutral and if we start see major mortgagee (foreclosure Sales) in domestic market maybe in 50 point cust.

what right have the US to try and devalue their currency to get out of this mess.... inflation is almost solely food and energy based right now.

try getting a raise from your employee!

2008 Jul 26 11:04 PM