Talk Money with Tony Field – September 7, 2015

Some economists are picking the kiwi could fall to 60 US cents (file)
Some economists are picking the kiwi could fall to 60 US cents (file)

The New Zealand dollar has fallen below 63 US cents. That is a level last seen during June 2009.

The kiwi is around 30 percent down from its peak against the US dollar of 88 cents just over a year ago.

Some economists are picking the kiwi could fall to 60 US cents. Already one local retailer is running TV ads encouraging people to buy now before the weaker dollar forces prices up.

The New Zealand currency has been falling because the New Zealand economy is slowing and the Reserve Bank is cutting interest rates. But it has also been sharply sold off as global share markets have slumped.

Where the kiwi goes now will be determined by all of those factors.

The Reserve Bank will review the official cash rate (OCR) on Thursday. More cuts to the OCR (currently 3 percent) would drive the dollar lower. That is because if foreign investors are getting lower returns on their cash it will encourage them to pull more of their money out of New Zealand.

Further falls in world share markets would also drive the kiwi dollar down. Investors tend to opt for "safe haven" investments like the US dollar in times of uncertainty.

Another factor is the US Federal Reserve. Investors are waiting to see whether the Fed will lift US interest rates from their current near zero levels. A hike in American interest rates later this month would accelerate the fall of the Kiwi.

Most economists are predicting that the RBNZ will lower the OCR to 2.75 percent on Thursday.

The real focus will be on what Reserve Bank Governor Graeme Wheeler has to say about possible future rate movements.

Many economists are picking that the RBNZ will cut the OCR to 2.5 percent this year. Westpac economists have suggested the OCR could fall to as low as 2 percent if the economy deteriorates faster than expected.

Currency analysts, economists and the banks will be looking closely at every word Mr Wheeler uses, or chooses to omit from his statement on Thursday.

Not all the banks are waiting for Thursday however. BNZ has cut its one year mortgage rate to 4.35 percent. To get the deal customers must have a twenty percent deposit and do their other banking with BNZ.

Five year rates have fallen to as low as 5.39 percent, compared to a floating rate of around 6 percent.

Setting the longer-term rates is tricky for the banks. They have to factor in both the New Zealand economy and also the cost of borrowing money from offshore.

Here is my chat with Paul Henry about rates and the dollar.

Last week was another bad one for world share markets.

Stocks fell just over 3 percent on Wall Street as investors fretted about China and pondered what the Federal Reserve might do.

The end of the week saw a sell-off as investors pondered the latest US jobs numbers.

Official data shows that 173 thousand jobs were created in August. That was lower than the expected figure of 220,000.

But the official unemployment rate fell to 5.1 percent, which was below the expected 5.2 percent.

Because unemployment is down some believe there is more chance the Federal Reserve will hike interest rates when it meets in about two weeks' time.

The Dow Jones Industrial Average fell 1.66 percent on Friday and was down 3 percent for the week.

The broader S&P500 was down 1.53 percent on Friday and was down 3.4 percent for the week.

The CBOE Vix volatility index, the so-called equity "fear gauge", was up 8.8 percent at 27.9 in late trade, well above the 20 level that marks its historical average

In Europe markets were down 2.8 percent for the week.

The UK market was down 3.3 percent.

Australian shares lost 4 percent for the week while New Zealand's NZX50 cwas down 2.2 percent.

Friday was 'Force Friday' for Star Wars fans. That was when a slew of new Star Wars toys were released.

Analysts are predicting that merchandise from the film Star Wars: The Force Awakens could generate US$5 billion over the next 12 months.

Disney's share of that could be $500 million (licensing and retail revenue).

The film itself could generate $2 billion, which would make it the third highest grossing film of all time behind Avatar and Titanic. Disney's share of the box office could total $1.2 billion.

It is important to note that the box office figures are not adjusted for inflation. Inflation adjusted numbers can be tricky, but usually sees Gone With the Wind (released in 1939 ) top the list ahead of Avatar and the original Star Wars film from 1977.

Other companies that are hoping to do well from the merchandising include Hasbro, Mattel and Electronic Arts.

The hype did not help their shares. Disney slipped 1.02 percent on Friday.

Hasbro fell 1.2 percent, Mattel was down 0.8 percent and Electronic Arts slipped 0.5 percent.

The kiwi was trading at 62.94 US cents at 8am.

It was sitting at 91.06 cents compared to 91.21 on Friday morning.

The kiwi was trading at 41.46 pence, compared to 41.90 on Friday.

It is 56.39 euro, compared to 57.46 on Friday.

The dollar is 74.83 yen, compared to 76.67 on Friday.

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