Cullen: The Finance Minister Who Cried Wolf
November 1st, 2006 by Justin
Traders are often overly sensitive to words springing from the mouths of politicians and government economists. This is no different for those tracking the New Zealand (or “kiwi”) Dollar, where last month Finance Minister Cullen talked down the country’s currency and caused a 150-pip drop. Those buying up kiwi-denominated assets for their attractive yields were burned hard in that instance.
Cullen tried the same tactic yesterday, but to no avail. Stating that the NZD is at “stubbornly high levels,” he was attempting to fight carry traders and yield seekers who have piled into the kiwi in a recent bout of high risk appetite. Problem is, traders know better this time. The NZD/USD hardly reacted, and is hitting new multi-month highs less than a day after his speech. It looks like Cullen and other New Zealand officials will have to change their tune substantially if they expect the markets to react, lower the currency, and boost their struggling export sector.
The trading lesson in all of this? Pay careful attention to the market’s reaction to a given public official. Trends in the importance of speakers seem to be much more stable (think Greenspan) than trends in the markets themselves.
