15th February 2019
If you haven’t seen the movie Groundhog Day, we highly recommend it. It’s about a TV weatherman that gets caught in a time loop and has to relive the same day over and over again.
In the same spirit, let’s have a look at events that affected the value of the Kiwi dollar this week (spoiler alert: they are similar to last week!).
As it stands, one NZD will buy you:
0.6725 US dollars
0.5166 Great British pound
0.882 Canadian dollars
0.9401 Aussie Dollars
Now, onto key global events affecting currency markets. Let’s start with the big three - the US/China trade talks, possible US Government shutdown due to Mexico / US wall funding and the gift that keeps on giving - Brexit.
US/China trade talks
Trade talks seemed to be progressing nicely, as US representatives arrived early to their negotiations to ensure a deal sorted. There was even talk of letting the March 1 tariff increase deadline slide due to the amount of meaningful progress being made.
It was all sunshine, lollipops and rainbows… until it wasn’t. Today, Bloomberg has reported that US and Chinese officials have said that the two countries have failed to bridge the gap and that they both have a lot of work to do.
Apparently, there is still talk of an extension to the March 1 deadline, but who really knows? Should this deadline remain, China is facing the prospect of doubled tariffs on over $200billion worth of exports into the United States.
If you are travelling soon and are worried about fluctuating exchange rates, we recommend adding Rate Guard to your transaction in store. It’s free, and if the exchange rate improves within 14 days of purchase we will refund you the difference*.
US Government shutdown
It appears as though all parties want to avoid another shutdown (yay). The initial shutdown had a profoundly negative effect on President Trump’s approval rating (shocker, who would've thought a 35-day shutdown could have such an impact). Even so, Trump is pushing ahead with his funding requests.
Where does this leave the US?
Currently, both parties have agreed on US$1.375b worth of funding for the wall. This amount would fund 55 new miles (about 88 kms) of border fencing, however, is significantly short of the US$5.7b that Trump was initially seeking. Trump has stated that he might declare a national emergency to obtain the remaining funds. Should he proceed with this course of action, the Democrats might challenge the national emergency in court.
In ongoing Brexit news, Britain's parliament has voted (303 to 258) against a motion endorsing Prime Minister Theresa May’s “Plan B” approach to resolving the Brexit deadlock.
It looks as though Parliament will take control of the process from 27th February, as the latest vote has effectively stripped May of the political mandate to demand the changes to the withdrawal agreement.
With just over a month until Brexit d-day, it’s imperative that British Parliament gets a move on with negotiations.
To finish: a sprinkle of economic data
Both domestic and international economic data, especially changes in interest rates, can have a major effect on currency movements.
USA economic data
US retail spending declined 1.2% month on month in December. Analysts had expected a 0.15 gain so this is a massive miss.
Markets attribute this decline to a few things, including huge falls in the stock market in December (the stock market was down 16% at one stage) and the uncertainty around the economic backdrop. The US government shutdown could have also played a role.
This could potentially put a hold on any increases in US interest rate rises. A hold on US interest rates is good for Kiwi travellers, as it means less downward pressure on the value of the NZD.
New Zealand economic data
In New Zealand, the Central Bank left its benchmark rate at 1.75%, as was widely anticipated. That said, the accompanying commentary was nowhere near as dovish (definition below) as the market had come to expect, and the NZD rallied strongly across the board as a result.
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Definitions for those of us playing at home:
Dovish vs Hawkish
These are terms that refer to the general sentiment of a country’s central bank when talking about monetary policy.
The bank will take a hawkish stance when they want to prevent excessive inflation. This is often done by increasing interest rates. Increasing interest rates generally puts upward pressure on the value of that country’s currency, as investors can now get a greater return.
The bank will take a dovish stance when the economy is not growing and the government is seeking to guard against deflation. You guessed it; this could lead to decreasing interest rates which would put downward pressure on the value of the currency. Just keep in mind that this value is still relative to other countries, so a dovish stance is not always bad news for the value of the currency.
An easy way to remember: hawks fly higher than doves. So when markets talk about things being hawkish, it generally means things are going up. You normally see doves on the ground, so if there is talk of things being ‘dovish’, things may be going down.
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All rates are quoted from the Travel Money NZ website, and are valid as of 15 February 2019
*Terms and conditions apply to Rate Guard. See http://www.travelmoney.co.nz/rate-guard for more information.