Currency Markets Bitch Slap Reserve Bank of New Zealand; Kiwi Still Rising
June 21st, 2007WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
The Kiwi Dollar ship of fools is riding the yen carry trade tsunami even higher. Of course, the mast has snapped, the rudder fell off and the crew is passed out drunk.
Via: Forbes:
The New Zealand dollar was higher, shrugging off reports of the Reserve Bank of New Zealand (RBNZ) again intervening overnight in order to stem the currency’s rise, as demand for the high-yielding unit showed no sign of abating.
Last week, the RBNZ confirmed it had intervened in the foreign exchange market in response to ‘unjustified’ gains in the kiwi dollar and reports of further intervention have now surfaced for the second time since then.
The currency has been a major beneficiary of the carry trade, where investors borrow in low-yielding currencies such as the yen in order to invest in higher-yielding assets elsewhere. This has led to gains which the central bank considers are out of line with the country’s economic fundamentals.
But with the RBNZ still in rate hiking mode after recently raising interest rates to 8.0 pct, the highest among major developed countries, demand for the currency is expected to remain strong, leaving the central bank fighting a losing battle.
‘Twice in the past week or so, the Reserve Bank of New Zealand has intervened at around this level and the market is therefore on tenterhooks as to the bank’s next appearance in the marketplace,’ said Neil Mellor at the Bank of New York (nyse: BK – news – people ).
‘However, such is the zeal with which the market has embraced the New Zealand dollar – as a high yielding currency – that there is little doubting the unrelenting pressure that the RBNZ is attempting to dispel,’ he said.
Furthermore, reported comments overnight from New Zealand finance minister Michael Cullen that more monetary tightening may be needed despite a possible downturn in the housing market only served to encourage buying of the currency.
And so it continues. One wonders what will happen when the RBNZ has burnt through it’s NZ$7b manipulation fund…
When the profit-taking big sell-off comes, well, it’s gonna make 97-98 look like a Sunday school picnic. Look at a 10-year graph of the NZ dollar if you can find one…
Cullen, Key, Clark, Brash…criminals and liars the lot of them.
I hate to think how many trillions of leveraged currency/credit/interest-rate swaps are waiting to go up in smoke.
Watch the BOJ very closely. I wonder if they’ve checked the methane in the basement recently…colourless, odourless and deadly.
BOJ flinches and this thing comes down.
Maybe cryptogon readers can help dispel some confusion I have about the yen carry trade. I wonder, with all of this apparent borrowing of yen and selling for higher yielding currencies, who is accumulating all the yen? These yen holders must be hopping mad and I would expect they would be pounding fists and demanding the japanese govt to raise rates. So who are they and why aren’t they more irate?
I have this nagging feeling that the yen is being set up as a sacrificial currency. Lots of people are expecting the dollar to collapse – and it may – but perhaps the yen goes first?
A 10-Year NZD-USD graph can be found here: http://www.nbnz.co.nz/economics/exchange/nzdusd.htm
…and the same in Yen: http://www.nbnz.co.nz/economics/exchange/nzdjpy.htm