No take-off for Kiwi
The NZ dollar has taken a lot of stick in recent days. Since touching a three-and-a-half-year high against the USD a month ago it has been under downward pressure and is now testing support around US$0.6970. It was Tuesday’s biggest faller alongside the NOK, losing an average of 0.7%.
There was no connection between the fortunes of the Norwegian and NZ currencies. Nor has there been over the last month: the NOK is up by 1.5% while the NZD has fallen 1.7%. It was a change in mortgage rules that depressed the Kiwi yesterday, while a $3 fall in oil prices put the skids under the krone (though not the Loonie). Neither is the most liquid currency. According to the latest BIS survey global EUR turnover is almost ten times as much as the two of them combined. So both offer relatively soft targets and investors decided to have a pop at both on Tuesday.
For some time the NZ government has been agonising about “unaffordable” house prices. Yesterday it announced what it hopes will improve the situation: limiting tax exemptions for buy-to-let investors. Although the prime minister accepts that “there is no silver bullet”, “the need for further action is clear”.
Federal Reserve Chairman Jerome Powell and his predecessor, the current Treasury Secretary Janet Yellen, spent Zoom time with the House Financial Services Committee. As revealed by the pre-released text of their speeches, they were both singing from the same hymn sheet.
Both of them told the committee that “more must be done to limit the economic damage” done by the pandemic. Addressing concerns about the threat of runaway inflation as a result of huge fiscal stimulus, the Fed Chairman stuck to his mantra that “our best view is that the effect on inflation will be neither particularly large nor persistent”. His bank is keeping an eye on it and will not tighten monetary policy until there is full employment and an average of 2% inflation. The US dollar took second place behind the JPY, strengthening by a cent and a quarter against sterling.
Tuesday’s economic data were unexciting. The Richmond Fed’s manufacturing index rose three points to 17. US new home sales fell by a monthly 18.2%, hit by cold weather and higher prices. New Zealand’s $181 million balance of trade surplus was of no help to the NZD.
Europe’s day began with the UK data for consumer and producer prices. Later today come the provisional purchasing managers’ index readings as well as US durable goods orders.
Investors' were not enthused by the UK inflation numbers, most of which were lower than forecast. Factory gate prices were 0.9% higher on the year while consumer prices rose just 0.4%. Although the retail price index was up by 1.4%, the measure does not figure in the rate-setting decision process.
The first provisional PMI readings from Australia were upbeat with manufacturing at 57 and services at 56.2. It is unlikely that many of the other services PMIs will be above the breakeven line at 50. Britain’s estimates are 55 for manufacturing and 51 for services.