Australian shares are poised to open higher, bolstered by gains overseas. UBS rises, US regional banks rebound. Fed decision ahead. Follow updates here.
The New Zealand dollar, one of this year’s worst-performing major currencies, is emerging as a prime choice to hedge against potential US dollar strength should the global economic outlook darken.
The kiwi has lost about 2.6 per cent in 2023, beating only the Norwegian krone among Group-of-10 currencies. The slide took place in the context of a modestly weaker greenback, with the Bloomberg Dollar Spot Index dropping 0.4 per cent this year. Analysts see a much more dire outcome for the kiwi if the US currency were to strengthen as a result of an economic crash-landing or should banking crises deepen. The greenback tends to act as a haven during times of international turbulence. So with banking turmoil raising the odds of a recession, it all points to a strategy of wagering against the currency of New Zealand, whose commodity exports make it especially vulnerable to global growth cycles.Co.
The bank maintains short positions on the kiwi versus the Australian dollar and yen through options. Looking back at the past four decades, JPMorgan found the kiwi to be one of the biggest laggards in a period spanning from one year before a US recession through one year after it ended. It fared much worse than other developed peers and even trailed emerging-market currencies such as the Mexican peso or Brazilian real.
Morgan Stanley recommends investors increase their short kiwi position through spot trades with a target of US58¢, implying an additional 6 per cent drop from present levels. The kiwi dollar touched US55.12¢ in October, its weakest since 2020, before bets on China reopening gained steam.
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