It is fashionable on Wall Street to hate the euro but it seems that nowhere is the currency so reviled as in New Zealand, where it hit a new low against the kiwi dollar on Wednesday.
The euro-kiwi exchange rate is hardly one of the world’s most important financial indicators. But it reflects a reality not captured by the much more closely watched dollars per euro: the euro has already fallen a very long way.
Against the dollar, the euro is only back to where it stood in August 2010. It has fallen a long way from its peak, to be sure, but it had risen a lot, too, thanks to America’s penchant for debasing its currency.
But on a trade-weighted basis the euro this week reached a low last seen in 2004, according to Bank of England data. The single currency is worth less than when it was created at the start of 1999 and has given back all the gains it made in the economic boom that ended with Lehman’s collapse.
The fundamentals of the euro zone crisis suggest it could fall further still. Capital flight, low and falling interest rates, and an austerity agreement that can only deepen the region’s recession are all bad for the currency.
On the other hand, it is hard to find anyone who likes the euro. Bets against the currency are bigger than ever. In the short term, that increases the odds of a rally; an agreement on a “voluntary” Greek default could be the trigger. It will not be enough to save Greece’s finances but it could easily offer a respite for the euro.
Investors in equities should be paying attention, too.
Most big investors hedge the currency. As I pointed out last week, since the summer European and U.S. equity indices have performed very similarly, with a gap of only 2 percentage points between them, and both slightly up.
Add back in the currency, though, and suddenly the U.S. was the place to be, with a 12-point outperformance. Choosing the region to buy has been less important than choosing which currency in which to buy.