TGIF friends, what a huge week it has been for global markets. As we ease into Friday, knock-off drinks in sight, let's take a look at the week that was for the Kiwi dollar. As it stands, one NZD will get you:
Unfortunately, the NZD is down against all major currencies since this time last week. If you need to exchange currencies, we recommend adding Rate Guard to your purchase in store. It's free, and if the rate improves within 14 days we will refund you the difference*!
Around the grounds: What has affected the NZD this week?
Hong Kong Protests Continue
Unrest in Hong Kong continued into its 10th week, with many pro-democracy protests happening throughout the country. These relatively peaceful protests have been met with increasing levels of hostility. On Thursday, China issued a threat to protestors claiming it has "enough solutions and enough power to swiftly quell unrest" should the situation become uncontrollable.
Meanwhile, President Trump has had his say by, of course, tweeting that protestors and Chinese leader Xi Jinping should meet to reach a "happy and enlightened ending to the Hong Kong problem".
All tweets aside, while these protests haven't had a direct impact on the value of the NZD, they have contributed to growing global concerns that are, in turn, leaving a bad taste in investors' mouths. In other words, investors are relatively risk-averse at the moment due to their lack of confidence in the global economy. This affects the Kiwi Dollar, a risk-on currency that thrives when markets are willing to make riskier investments.
US Bond Yield Curve inverted and markets LOST.THEIR.MINDS
On Wednesday the US bond yield curve inverted (see definition below), a movement that has foreshadowed the last seven recessions. As you can understand, markets were shaken and recorded the worst day since December 2018 wiping 3% from Wall Street.
This inversion, coupled with data from Germany and China that showed their economies are weakening as a result of the trade war, lead to further angst in global traders.
Speaking of the US/China trade war, China's State Council Tariff Committee have announced they will take counteractive measures should the US continue with their current plans to slap another round of 10% tariffs on USD 300billion worth of Chinese imports. Another day, another tariff.
Australian employment data provided the NZD with a short-lived boost
On Thursday, Australian employment data gave the AUD a much-needed boost. The positive correlation between the AUD and NZD allowed for an increase in the Kiwi Dollar against the USD. However, the seemingly ever-present cloud that is the US/China trade war continues to put downward pressure on the value of the NZD.
Unfortunately, July's Business NZ Purchasing Manager Index (PMI) has contracted for the first time since 2012. July's figure came in at 48.2, was well below the expected value of 51.8. This news has caused the NZD to backtrack on any gains made on Thursday.
Furthermore, Governor of the Reserve Bank of NZ (RBNZ) Adrian Orr has emphasised the bank's low inflation expectations as the reasoning behind their shockingly low interest rate decisions as of late.
MP's want to extend Brexit again. Sigh.
Labour leader Jeremy Corbyn has put out a call to other opposition parties and rebel conservative MP's to join forces to create a caretaker government, call a general election and secure an extension to Article 50. He is doing this in the hopes of extending the Brexit deadline (AGAIN!!) and preventing the UK from crashing out of the EU with no deal on October 31.
From an economist point of view, we probably don't want the UK to leave the EU without a deal as it could have pretty profound ripple effects throughout the economy. Sure it might boost the value of the NZD against the GBP in the short term (yay cheap Yorkshire puddings!), the long term effects would be far less delicious.
From the perspective of a writer that's been covering Brexit for the last two years/ general member of society, I want this to be over and done with. Let's shove Brexit at the back of the wardrobe, cover it with a few coats and pretend it never happened so we can go back to our normal lives. Please?
Anyhow, as you can see, it's been a big week for global markets and the Kiwi Dollar. With no end in sight for the HK protests, trade war and Brexit, I have no doubt next week will be just as... exhilarating.
Definitions for those of us playing at home
Bond yield curve
A yield curve graphs the difference between interest rates on long-term and short-term investments. A normal curve shows long-term investments paying high rates of interest. An inverted curve means the opposite, with short-term bonds paying higher interest than long-term ones. The curve itself is considered a reasonably accurate measure of economic sentiment in the market. It is a leading economic indicator, with the previous success of predicting the economic future.
Risk-on v Risk-off theory
This refers to changes in investment activity based on the level of risk tolerance in the market. If the risk is perceived to be low (risk-on) the theory states that investors are more willing to engage in higher-risk investments. Likewise, when the risk is perceived to be high (risk-off), investors will seek lower-risk investments. The Kiwi dollar is considered to be a higher-risk investment, so it's value will generally increase during risk-on moods when risk appetite is high.
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