Bollard buys time as high kiwi hampers exports
September 14th, 2009
FedFarmers didn’t get the interest rate cut it barracked for in the run up to this month’s central bank statement but Governor Alan Bollard did the best he could not to fuel the NZ dollar’s gains. By maintaining the RBNZ’s easing bias, Bollard has sent a message to the foreign exchange market not to get ahead of itself in betting on the kiwi dollar. He has need to worry. Traders are pricing in hikes to the official cash rate of about 100 basis points in the next 12 months. The immediate reaction of some traders to Bollard’s statement is he is bluffing and will end up tightening before his target date of second-half 2010.
The damage caused by the currency’s strength is underpinned by the shock outcome for the second-quarter terms of trade. Export prices had their biggest tumble since 1951, led by a 24% slide in dairy prices and a 7% decline for meat. The trade-weighted index, or TWI, climbed 8.7% in the second quarter. Bollard says sustainable medium-term growth requires “improved competitiveness in the export sector.” He predicts a patchy recovery at best.
Commodity currencies have generally been the stellar performers in the forex market since March as traders bet they’ll benefit the most from a recovery in global growth. Feds president Don Nicolson warns the so-called green shoots may turn out to be weeds. But the resurgence of milk powder prices in Fonterra’s monthly auctions and a broader recovery in NZ’s export commodity prices gives hope the unbalanced NZ economy will tilt toward the tradable sector.
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