NZD/USD Soars as Hobbit Movie Stays in New Zealand

Monday, 1 November 2010 

With the recent stoush concerning New Zealand vs Warner Bros, the announcement was made on Wednesday last week that the Hobbit movie will continue to be filmed on set in New Zealand. This comes after much debate as to whether or not the producers of the movie would allow the countries lax employment laws to be accepted for actors and actresses in the movie.

After top level government negotiations however, it seems that an agreement has been made and that the movie will therefore continue as scheduled.

This seems to have provided a huge boost for the NZD - with the currency rising against the USD by a whopping 200 pips on Thursday and Friday last week combined. To start the markets off today - at the time of writing, the NZD/USD was up another 20 pips, bringing the total rise to 220 pips in just 3 trading days.

So why is the NZD benefiting from the hobbit staying? Many analysts are putting it down to the fact that Warner Bros is hedging its exposure to the New Zealand market - and that the moves we have seen are a direct reflection of the buying of the New Zealand Dollar to pay production costs in the country.

It is estimated that the Hobbit movie (which is actually being filmed as two movies) will cost around $600 million US dollars in total - 90% of which will be spent in New Zealand.

Thus, despite the fact that the New Zealand Dollar was stronger in trading on all of the last 3 trading days, we believe that it is only a matter of time until market forces bring it squarely back to earth. Whether the NZD/USD continues its run for the next week or so whilst the side orders are settled remains to be seen.

However, we believe that the NZD/USD will be trading at around the 0.7400 level by the end of the year - despite the beneficial nature of the Hobbit movie to the New Zealand economy.

RBNZ governor Bollard failed to raise rates in the economy last week - indicating that he believes that the economy is in for a slight slowdown in the near term. This may well be the case, as we have seen some pretty shocking economic figures out of the country in the last week or so. Consumer confidence fell for the third straight month, and retail sales slowed appallingly - much to the surprise of analysts.

Thus, the hold on the official cash rate is seen to assist consumers with their spending, and make the funding of credit cards and personal loans temporarily cheaper.