NZD’s slide is not over
The New Dollar was by far the worst performer among the G10 complex this morning as Prime Minister Jacinda Ardern made her first announcements. The Kiwi rose to $0.7004 before reversing momentum towards $0.6926 after New Zealand’s Prime Minister announced the priorities of the newly formed government – NZ First’s Winston Peter is now deputy PM. One of the priorities of the coalition government is to review and reform the central bank act by adding another mandate to the central bank. Should this be accepted, the Reserve Bank of New Zealand (RBNZ) will have a dual mandate, just like the Federal Reserve, and will have an employment target as well as the traditional inflation one. However, what sent the Kiwi lower is another comment from PM Ardern regarding the possibility to give the central bank more flexibility to manage the NZD’s value against other currencies.
Besides reforming the Central Bank Act, the government also made other commitments including forbidding foreigners to buy real estates, to trim immigration down to 30k people a year, to create a fund for regional development and to plant 100 million trees per year, among other priorities.
The New Zealand dollar has fallen almost 3.50% since the announcement of the Labour coalition government. Last week, we said that the Kiwi has further downside potential as speculators continue to unwind their bullish bets. We maintain our target at $0.6888 (low from May 11th). Another support lies at 0.6676 (low from May 2016).
Japan: Big win for Shinzo Abe at parliamentary election
The Japan election sent the USD/JPY to a three-month high above yen 113.50 for one single dollar note. Shinzo Abe won by a clear majority (312 seats out of 465 possible, more than a two-thirds majority). The prime minister victory is synonym of continuation of the Abenomics. The free money is then likely to continue flooding in Japan for some more time. The Nikkei has by the way reacted very positively by setting an all-time high to 21805 points.
This result may sound as contradictory knowing the failure of the Abenomics so far. The targets set up by Shinzo Abe have not been reached. The Japanese debt has never been so strong and the country struggles against deflation. Wages growth are very low. The truth is that the country needs this very loose monetary policy to keep going.
Abe promised to open up Japan to foreign investments in order to boost Japan’s economy. Abe, which political future seemed at staked is now like a phoenix reborn from ashes. Next time, it won’t likely work that way!
