Kiwi takes a brutal hit

The biggest mover this very early Asia-Pacific morning has been NZD/USD and NZD/JPY, triggered by comments made by New Zealand Finance Minister Cullen, saying that the RBNZ will not raise interest rates, and will probably not do so until 2009. He also noted that the recent appreciation of the Nzd was driven by speculative hedge fund, and is not sustainable, and warned that a NZD/USD 0.4000 rate should not be ruled out (!!).
Note that New Zealand’s…

current account deficit is close to 10% of GDP, which is the highest among the industrialized countries.
Next support for NZD/USD lies around 0.6545, then 0.6500, then 0.6460. Selling into rallies seems the way, given this bleak prognosis.

NZD/JPY on the other hand, fell by more than 100 pips after Cullen’s strong words. The quick decline area from 77.90 would be the broad selling area.

Last night, US Treasury Sec Paulson seems to have succeeded in persuading Senators Schumer and Graham in holding off a vote on the bill to impose 27.5% tariffs on Chinese exports to the US. They will decide within the next 1 or 2 days before the Senate goes into recess after Sep 30.

Derailing the vote would greatly boost USD/JPY, as the bill would reflect the US’ view that the Chinese yuan is undervalued by 15-40%.

USD/JPY’s immediate resistance is around 117.20, then 117.45, then 118.00.

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