Both DailyFX and Phil Roberts from Barclays Capital, in an interview on European Closing Bell, are calling a "major top" in the NZDUSD exchange rate.Back when the market thought the Fed had removed its tightening bias the fundamentals probably pointed to more kiwi strength but now that the tightening bias is back maybe USD strength is correct?
One bugaboo for the kiwi is the current account deficit which runs about 9.5% of GDP compared to 6.5% of GDP for the US. The figure is estimated to decline in New Zealand to a slightly smaller percent but that remains to be seen.
Here's a whacky theory; could the US with its 6.5% current account deficit be worse off than New Zealand with its 9.5% current account deficit? The US, by virtue of its size, has a much more diverse economy capable of meeting far more of its needs than New Zealand and its very limited resources.
If this is possible then maybe a declining current account deficit in New Zealand, although still larger, is a fundamental reason for the kiwi to defy the chart pattern.
Just a thought.
1 comments:
To put the two current account deficits in perspective: America's quarterly current account deficit is roughly twice the size of New Zealand's entire economy. New Zealand's Q4 current account deficit was NZ3.9 billion- which translates to the trade deficit that the US racks up in about 34 hours.
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