Having finished Monday way out at the top of the FX pile and up against every major currency, the Kiwi Dollar extended its gains even further on Tuesday morning before finally giving back a little of its stellar performance. It still finished the day up against every currency apart from the AUD (against which it was net unchanged at 1.0900 having at one point been to AUD/NZD1.0864) and did best against both the GBP and EUR.
Why is it, our readers may wonder, that the appointment of just one person to the Central Bank might have such a disproportionate impact on the FX market? There are two parts to the answer: firstly, we always have to take investor positioning into account. After the September 23rd General Election in New Zealand, there were worries about the overall direction of economic policy, the attitude towards inward capital flows into the residential property market and a change in the Central Bank’s inflation fighting mandate. Investors were generally short of NZD, either outright or relative to neutral benchmark weights. Such positions are always vulnerable to a squeeze on unexpected positive news flow. Secondly, New Zealand doesn’t have a monetary policy committee with separate votes for each member. As the RBNZ notes on its own website, “At the Reserve Bank of New Zealand responsibility and accountability for monetary policy rests on one individual − the Governor of the Reserve Bank”. If he or she wants to change interest rates, they are changed. It’s as simple as that.
After giving back some – but by no means all – of Tuesday’s gains, the Kiwi Dollar opens in Asia this morning at USD0.6935 whilst GBP/NZD at 1.9190, is a more than 5 cents below last Thursday’s highs up around 1.9760.