Fed Uncertainty Dampens ‘Greenback’ Optimism as USD-NZD Posts Minor Loss
The US Dollar has fallen to 1.5791 against the New Zealand Dollar today, although it is currently trending close to the highest exchange rate level since the end of 2009.
The US Dollar has been adversely affected recently by a combination of Federal Reserve noncommittal and shortfalls in expectations when it came to economic releases. The largest of these was the US ISM Manufacturing score for August; while a drop of -0.2 from the previous figure of 52.7 had been predicted, the actual outcome showed a fall of -1.6 points down to 51.1. The ISM Prices Paid score for August also declined, although the drop from 44 to 39 was in line with expectations.
The Federal Reserve has been fairly unhelpful towards the faring of the ‘Greenback’ lately, as well. Influential Fed Vice Chair Stanley Fischer was vague about when and by how much the US interest rate would be raised at the Jackson Hole Symposium over the weekend, and instead offered the following unspecific statement - ‘To do what monetary policy can do towards meeting our goals of maximum employment and price stability, and to ensure that these goals will continue to be met as we move ahead, we will most likely need to proceed cautiously in normalizing the stance of monetary policy. For the purpose of meeting our goals, the entire path of interest rates matters more than the particular timing of the first increase.’
Caution has been the watchword of Fed announcements in the wake of the stock market crash last week, as even after saying that the US Employment target required for an interest rate hike had been ‘largely met’, Fed Bank of Boston President Eric Rosengren added that ‘macroeconomic models of the economy overwhelmingly suggest little impact on the broader economic landscape from moving the timing of initial interest rate hikes forward or backward by a couple of months’, whenever that timing happens to actually be.
Employment may be Saving Grace for Currently Soft USD against NZD
Appropriately enough for Rosengren’s statement, the US Employment Change figure for August is due later today and predictions have been positive with a 200k person increase on the cards. Even if this result falls short, major shifts in New Zealand’s economy may still push the ‘Buck’ up against the ‘Kiwi’ in the near future; the continuing crisis around low dairy prices has triggered dairy farmers in New Zealand to take the drastic measure of cutting the size of their herds for the first time in a decade.
Along with the news that milk prices remain around their historic lows of $16.30 and that tourism is pitched to overtake the dairy farming sector in terms of economic importance, New Zealand seems to be undergoing the same turbulent national economic restructuring that has hit neighbouring Australia, which has still yet to find a suitable alternative sector to its flagging mining industry. This will naturally degrade the performance of the ‘Kiwi’ against the US Dollar in the meantime.