A 'most un-Australian' crisis over dollar

Speculation the New Zealand and Australian currencies may reach parity is causing volatility in the Australian currency as the country faces a slew of confidence-affecting issues.

Craigs Investment Partners broker Greg Easton said most of the noise in the currency market was about the Australian currency, not so much about the kiwi.

''Australia is facing the most un-Australian of crises - a crisis of confidence.''

The concerns for the Australian dollar included:Rising unemployment.

Falling iron ore and coal prices, on top of the fall in oil prices.

Interest rate cuts - probably the most important from a currency perspective.

''Hopefully, the kiwi will be dragged down it with against the US dollar but I can only see strength against the aussie for us, especially as our next interest rate movement is probably up,'' Mr Easton said.

There were still a lot of positive factors influencing the New Zealand dollar, he said.

They included: the government accounts nearing a break-even point; falling unemployment and steady GDP growth.

One of the hardest things to understand was the higher interest rates here than in much of the rest of the world, despite lower risks. The New Zealand 10-year bond rate was about 3.6% compared with 1.8% in Italy, he said.

The Australian dollar had surged against the US currency at the weekend, following the release of weak US wage growth figures on Friday night.

It got a further boost on Monday with an upbeat ANZ survey showing local job advertisements rose for the seventh month in a row in December.

But the currency did a U-turn yesterday, amid increasing speculation the Australian dollar-NZ dollar exchange rate could reach parity in 2015, BK Asset Management managing director Boris Schlossberg said.

Expectations of a Reserve Bank of Australia rate cut were growing after a near 50% fall in commodity prices, but in New Zealand, a housing boom had left the central bank contemplating further rate hikes, Mr Schlossberg said.

The RBA's official interest rate is 2.5% and the New Zealand Reserve Bank has had an official cash rate of 3.5% since July last year.

''Whether the RBA decides to ease policy further remains to be seen, but this week's employment report could be the key to setting market expectations for the near future.

''The market is already expecting a sharp retrace to 5300 jobs from the 42,000 gain the month prior.

However, if employment actually turns negative, the pressure on the RBA to act will increase exponentially and the Aussie dollar could crack the US80c level as speculators exit the trade,'' he said.

 

Add a Comment