Kiwi Bears’ Record Shorts Prove Prescient as Wheeler Cuts Rate

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New Zealand dollar bears correctly predicted the currency would weaken as data showed traders placed record short positions last week before the central bank cut interest rates.

Bearish wagers on the kiwi exceeded bullish ones by 11,795 contracts in the week through June 9, compared with 10,539 the previous period, the Commodity Futures Trading Commission said in Washington. The Reserve Bank of New Zealand lowered its benchmark for the first time in four years on June 11.

New Zealand’s dollar was close to weakest since 2010 versus the greenback Monday amid speculation the central bank will keep lowering rates while the Federal Reserve raises them. The kiwi has tumbled for the past eight weeks, the longest losing streak since October 2000.

“The market was expecting an easing this year and pricing for the kiwi reflects that as well as the recent resurgence in the U.S. dollar,” said Imre Speizer, a markets strategist at Westpac Banking Corp. in Auckland. “It’s a double-whammy reason why people have jumped on shorting the kiwi against the U.S. dollar.”

New Zealand’s dollar slipped 0.1 percent to 69.79 U.S. cents at 8:41 a.m. in London after falling to 69.43 on Friday, the weakest level since July 2010. The kiwi will decline to about 65 cents by year-end, Speizer said.

Swaps traders predict the central bank will cut borrowing costs by 38 basis points in the next 12 months, according to a Credit Suisse Group AG index.

Wheeler’s Signal

Reserve Bank Governor Graeme Wheeler said another rate reduction may be appropriate after he and his colleagues cut the benchmark a quarter percentage point to 3.25 percent at the June 11 meeting. The central bank is betting lower borrowing costs will weaken the currency and stoke inflation from near zero to its 2 percent goal.

Akira Takei, who six months ago predicted the central bank would cut rates in June, is selling the kiwi in a bet borrowing costs will keep falling.

The central bank will reduce its benchmark below 2 percent by the end of 2016 as overseas demand for New Zealand properties weakens, said Takei, chief fund manager for global bonds at Mizuho Asset Management in Tokyo.

“This is just the start of a series of rate cuts,” he said. “Global economies, particularly China and U.S., aren’t performing well, which will have an impact over New Zealand through demand for dairy products.”

The kiwi will probably fall below 60 cents by the end of 2016, Takei said.