How low can you go? No, it’s not an impromptu conga line at Friday night knock-off drinks. Instead, it’s the Kiwi dollar, steadily falling to fresh lows as the world comes to terms with the current Coronavirus outbreak. Despite slightly better than expected domestic GDP figures and today being B-day (or Brexit day for those playing at home), the Coronavirus continues to dominate global headlines and market movements.
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What is impacting the Kiwi Dollar this week?
The Wuhan Coronavirus is proving to be a considerable concern for markets, driving down risk-sentiment, which is bad news for the New Zealand dollar. Overnight the World Health Organisation declared a public health emergency of international concern, as the virus continues to spread and the death toll rises. While the mortality rate is lower than that of the SARs outbreak of 2003, the prevalence of social media and magnitude of global travel has led to growing concerns about how quickly and far the virus will travel.
This concern has made markets more cautious, flocking to ‘safe haven’ currencies like the USD, JPY and CHF for refuge and deserting ‘riskier’ currencies like the AUD and NZD.
Global concern aside, the virus has stemmed from China - one of New Zealand’s biggest trading partners, especially for meat and dairy products. The Kiwi economy has inextricable links to China, and China’s decision to shut down factories and markets to prevent further spread of the virus is impacting agriculture prices and weighing on future GDP estimates. Not to mention the fact that major ports and transport links have either been closed or disrupted as a result of the virus.
All of this has put significant downward pressure on the value of the Kiwi dollar. Markets are also dubious as to China’s ability to fulfil their end of the freshly signed trade deal with the US. If the virus continues on its current trajectory, keeping China at a standstill, it will prove difficult for them to purchase the US$200billion worth of US goods over the next two years.
Chinese markets were closed this week for Chinese New Year. They will remain closed until Monday at the earliest; however, there are no guarantees as to when they will open for sure as China continues to grapple with the Coronavirus.
The New Zealand trade balance for December was released this week, showing a decrease from $-4.85billion to $-4.31billion. This is good news, however it has had little impact on the value of the NZD as the Coronavirus continues to outweigh domestic data.
The UK - It’s Brexit Day!
On Thursday the European Union ratified the Brexit agreement. This means the UK will officially no longer be part of the EU as of midnight tonight Brussels time, or 11 pm UK time. What now? Well, both the UK and EU will enter a transition period, working out new trade deals with each other and the rest of the world. This process won’t happen overnight, and could very well have an impact on the value of the GBP as time progresses.
That’s not the only thing happening as a result of Brexit, though! At midnight all British flags will be removed from EU buildings, and the EU flag will be lowered from British delegation offices. Perhaps the most exciting thing to happen, is the fact that three million commemorative 50p Brexit coins inscribed with the date and “Peace, prosperity and friendship with all nations” will enter circulation in the UK. Keep an eye out for these little gems the next time you’re in the motherland.
Brexit aside, this week the Bank of England kept their interest rates on hold. This was unexpected by markets, and the GBP was boosted as a result.
Looking forward to next week, it appears that the Coronavirus will continue to dominate headlines and determine market movements. Be sure to sign up to the Travel Money Club to stay in the loop with the latest foreign currency developments, and be in the running to win $500 every month.
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