Foreign Currency Exchange

A trail of despair followed the Kiwi Dollar last week, with grim economic data revealing retail sales tumbling for a third consecutive quarter and investors continuing to curb their appetite for risk. The tightening of demands for carry trades reflects a bearish outlook for the NZD and as fears of a global recession intensify the Kiwi is likely to experience increased selling pressures. Deteriorating fundamentals continues to spur bets that the Reserve Bank of New Zealand will aggressively cut borrowing costs well into the next year in order to avoid a deep and severe recession. Volatility is likely to remain…

The overall sentiment for the Aussie dollar is still bearish, although this has not been enough to counter the antipathy surrounding Sterling like a storm cloud. The result of both of these forces have appeared to act in almost equal measure leaving the cross particularly range bound, especially when compared with some of Sterling’s other major crosses. The large shifts caused by Sterling weakness against the US Dollar and Euro have failed to materialise against the AUD with the cross oscillating around a 2% range for the last week.

The Canadian Dollar fell further against a basket of other currencies, after a dismal finish to the end of the week with the Toronto Stock Exchange and Dow Jones Industrial Average trade leading to further US Dollar strength. Continued losses in crude oil prices likewise boded poorly for the Canadian currency; the downtrodden Loonie falling especially hard against the resurgent Greenback due to plummeting raw materials prices.

Deteriorating fundamentals dragged on the New Zealand Dollar last week as the unemployment rate spiked to its highest level since 2003, and may face further headwinds over the coming week as further economic news continues to reflect a dour outlook for the NZ economy. In addition, interest rate expectations could also stoke increased selling pressures for the high-yielding currency as we expect the Reserve Bank of New Zealand to aggressively cut borrowing costs well into the next year.

In what promises to be another volatile week for the Aussie Dollar, the RBA is set to release its Quarterly Monetary Policy Statement, which is likely to offer familiar rhetoric justifying a further reduction of borrowing costs. Many analysts are now suggesting we may see a further 1 ½ points come off the base rate in Australia.