Wednesday, 25 March 2009

NZD/USD Update

Closed out long 2m NZD at 0.5668 at break even at 0.5668. Will re-establish long lower down on the correction lower. Still prefer being long overall, and do not want to be short at all.


Gavin said...

Just wondering your thoughts of the S & P potential of a credit downgrade for New Zealand. I’m thinking if it was to happen then we could see carnage in the NZD crosses. I think they will wait for the budget before finalising any review. Key and Co will not want it to happen or will they not mind. I’m unsure on this point. I have been trying to do the analysis based on what Key is thinking here. It is in my view a very important point to consider if trading NZD

Kiwi Trader said...

You are absolutely right. John Key has a background as an FX trader (have known him for years) and in my discussions with him he is well aware of the implications of a credit downgrade as is FM Bill English. I think they will look at what budget deficit would be acceptable to Moody's and S & P, then look at the tax take, and work back to possible spending and timelines from there to craft the budget.

But you are right that we could see carnage on the NZD if there is a downgrade. At this stage I don't think there will be, because John Key will make sure of it.

But you can't rule it out completely. In any event there will not be any decision from the rating agencies until post budget in May. That is the danger period. Until then still safe to be long NZD at good levels, which we should see this week sometime, as risk aversion reappears.