Intervention threat trips Kiwi dollar

On Monday night eight armed men broke into Zaventem airport near Brussels.  They drove to a Swiss-registered aircraft that was loading on the ramp and transferred 120 packages from the hold into their van.  Mistaking their actions for the normal behaviour of baggage handlers, police allowed the men to carry off diamonds worth $50m.  So far the men have not been caught.

If apprehended, they are likely to be charged with either insider trading or money laundering, both of which carry heavier penalties than armed robbery so don’t expect them to be using services on the internet to send money online.

As diamonds typically change hands for US dollars and the thieves (one assumes) are Eurolanders, they will already be looking at a book loss of €250k on their booty, the euro having strengthened by one US cent between Friday night and this morning.  If they were British bandits they would be looking at a mark-up of about £70k, since sterling has fallen by a third of a US cent over the same period.

The pound had a tough day on Tuesday. It fell by nearly a cent against the euro in money transfers, the Swiss franc and the Australian dollar and is down by one yen. As can be seen from its smaller quarter-cent losses to the US dollar and the Aussie, sterling committed no major blunder but, like the diamonds on the plane, just happened to be in the wrong place at the wrong time.  The wrong place was right on the four-year-old trend support for sterling/euro, which investors have made several attempts to break in the last couple of weeks and had another go at on Monday afternoon.

In the unlikely event that the raiders came from New Zealand they will consider themselves particularly fortunate that the NZ dollar chose yesterday to be the world’s worst-performing major currency, thereby handing them a book profit of NZ$350k on their booty. The Kiwi’s setback came early this morning after Reserve Bank of New Zealand Governor Graeme Wheeler warned that “the Kiwi is not a one-way bet” and that he is “prepared to intervene”.

One must presume that Mr. Wheeler took the precaution of clearing his intervention threat with Prime Minister John Key, the one-time global head of foreign exchange for Merrill Lynch. In April last year Mr. Key described such action as “the stuff of LaLa Land”, saying “I don’t believe in intervention – never have and frankly never will. I spent my professional life looking at it and it fails.” Of course, the prime minister might have changed his mind about intervention since then, having realised that he is just about the only world leader not so engaged.

The highlights of Monday’s ecostats were the much stronger readings from ZEW’s surveys of German and Euroland investor sentiment.  They didn’t have much immediate impact but will have done no harm to pro-euro attitudes.  Worse-than-expected Japanese trade figures overnight sent the yen only temporarily lower.

With German inflation (1.9%) out of the way and with French inflation and Italian industrial production unlikely to influence investors, the most important items on the morning agenda are the UK employment data and the Monetary Policy Committee minutes.  US building permits, housing starts and producer prices this afternoon ought not to affect the dollar but the FOMC minutes at 19:00h might.

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