Over the past few weeks, it has becoming increasing clear which countries and
their currencies are headed down the gutter:
The 3 currencies that I am most bearish for the near term are (in order of
bearishness).
1. New Zealand Dollar - Targeting 70 Cents
The Reserve Bank of New Zealand cut
interest rates last night for the first time in 5 years. With retail sales
falling by the most in 4 years and consumer confidence hitting record lows, the
New Zealand dollar has weakened to the lowest level in 6 months. With RBNZ
Governor Bollard promising more rate cuts and the futures curve pricing such
action, the New Zealand central bank has become the most aggressively dovish
policy maker of the G10. As a result, I expect significant weakness in the NZD
and for it to fall below 70 cents against the US dollar in the near future. Also
look for AUD/NZD to hit new highs.
2. British Pound - Pace of
Deterioration Will Increase
UK retail sales dropped by the
largest amount in 22 years last month. Despite the hawkish tone of the Bank of
England minutes, there is no way that the BoE will risk raising interest rates
in the near future. Furthermore, the pace of deterioration in the UK economy
will only accelerate, pushing the BoE closer and closer to a rate cut,
especially if oil prices remain at current levels.
3. Euro - Stubborn Comments to Haunt the Euro
German business confidence, investor confidence and consumer confidence have
fallen significantly. The manufacturing sector is beginning to crumble under the
weight of the slower global growth, high interest rates and the strong Euro. The
ECB is stubbornly hawkish, but expect this stance to come back and haunt them.
