Happy Friday and merry last day of the business working year everyone! With five days until Christmas, the NZD saw a nice boost overnight, perfect for any last-minute online shopping from overseas (pray they have express post) and just in time for you to buy your foreign currency for the festive getaway. As you wrap up your last day of work with a bevvy or two, one Kiwi dollar will buy you:
As we move towards the end of 2019, the improving global economy is becoming more apparent, which is excellent news for the Kiwi dollar. Throughout the festivities over the next two weeks, currency markets tend to be quite illiquid. Wow, new word on a Friday. What does illiquid mean?
Liquidity references the level of market interest, or number of traders and volume of trade, in the market. Highly liquid markets see more gradual price changes in smaller increments. Illiquid markets are the opposite, with more abrupt price movements in larger increments. It makes sense at this time of year, as more traders are likely to be on holidays, kicking back and eating slightly too much Christmas ham.
Last year this led to a 'flash crash' on January 3, when the value of the Aussie dollar dropped 4% against the USD in a very short period. The catalyst of this drop was quite small; however, the illiquid nature of the market exacerbated the fall more than it otherwise would. While this didn’t affect the NZD as much, it is an example of what could happen in a short amount of time.
We don't know if this will happen over the next two weeks; however, it is worth keeping your eye on what is happening in financial markets and purchasing the NZD when it is doing well.
If you are worried about rate changes, why not add Rate Move Guarantee to your purchase in-store? It's free, and if the rate improves within 14 days, we will refund you the difference*.
As we close out the year, let's take a squiz at what's affecting foreign exchange markets.
In the USA
Firstly, this week the US and China agreed upon a 'phase one' trade deal. This brightened the prospects of both the Chinese and global economies, and is somewhat of a Christmas miracle after months of back and forth. While this isn't the end of the trade deal saga, it is a positive step that reflected well on the NZD, adding upward pressure to its value.
Secondly, unless you've been living under a mountain of Christmas wrapping, you would have heard that yesterday, the US House of Representatives passed two articles of impeachment against President Trump. The first charge was an abuse of power, and the second was obstruction of Congress. While this is big news and makes Trump the 3rd President in history to be impeached, he is still the President. The Senate will now hold a trial to determine if he should be kicked out of the Oval Office. Like most of us, they are having a Christmas break, so the trial is likely to take place in early January. It is unlikely that Trump will be removed from office, as the Senate is comprised of 53 Republicans (Trump is a Republican), 45 Democrats and two independents.
While the Senate is meant to hold a fair and impartial trial, it is highly unlikely that Trump's party will vote against him, meaning there won't be the majority required to remove Trump from office. Markets are aware of this fact, so the news of the impeachment charges was relatively ignored and did not have a significant effect on currencies.
If Trump is convicted and removed from office, there will be a 'risk off' mood in markets which spells bad news for the value of the NZD. This won't occur until after the Christmas break, so cheers another mimosa and leave that for future you to deal with. If, however, you are travelling early next year, it might be worth capitalising on the NZD's recent good fortune (with the addition of Rate Move Guarantee of course).
In the UK
Last week the UK held their general election, and Boris Johnson managed to secure a significant victory, winning 365 seats in parliament. His opposition, the Labour party, lost 60 seats and claimed 202 for the next term. This means the deadlock in parliament is no more and Johnson can officially move forward with his Brexit plans without too much argument.
What now? On Friday UK time, the House of Commons will debate Johnson's withdrawal agreement. Their 80 seat majority means the bill should pass relatively easily and things will stay on track for Johnson's January 31 Brexit deadline. With that almost a certainty, markets are now concerned about the UK's ability to secure a trade deal with the European Union by the end of 2020. This concern is weighing heavily on the value of the GBP, especially considering the British economy is growing at its slowest rate in ten years. As a result, the pound has depreciated in value against both the USD and NZD.
In New Zealand
Markets expect the NZD to hold into its recent gains as we charge into 2020, especially after this weeks GDP release.
Earlier in the week, Q3 2019 Gross Domestic Product (GDP) data was released, showing GDP rose 0.7% on last quarter which was far better than market consensus. The stickler to this, however, is that Q2 GDP was revised down from 0.5%qtr to 0.7%qtr.
While this data was great news for the domestic economy and NZD, markets still expect a 25 basis point cut to interest rates in May 2020.
With all of this in mind, the Kiwi dollar is caught in the middle. Improved sentiment around the global economy provides much needed upward pressure to the value of the NZD; however, this is counterbalanced by downward pressure stemming from a less than ideal domestic economy.
It's a frustrating position to be in and certainly doesn't make it easy for travellers planning their foreign currency purchase. As we begin to celebrate the end of 2019 and welcome in the new decade, there is limited data released in New Zealand, so markets will turn to global events to dictate currency movements.
While the business year may be finished, our 160+ stores across Australia and New Zealand are still open to service all of your travel money needs. Simply Google your closest store to check out their holiday hours.
From everyone at Travel Money NZ, we wish you a very Merry Christmas and a prosperous new year filled with adventure.
This blog is provided for information only and does not take into consideration your objectives, financial situation or needs. You should consider whether the information and suggestions contained in any blog entry are appropriate for you, having regard to your own objectives, financial situation and needs. While we take reasonable care in providing the blog, we give no warranties or representations that it is complete or accurate, or is appropriate for you. We are not liable for any loss caused, whether due to negligence or otherwise, arising from the use of, or reliance on, the information and/or suggestions contained in this blog. All rates are quoted from the Travel Money NZ website and are valid as of December 20 2019. Terms and conditions apply to Rate Move Guarantee.