As New Zealand is gearing up for the next general election which is scheduled for the 23rd of September, forex market players are anticipating huge fluctuations in exchange rates of the NZD. In a notice issued by YJFX it is warning its customers that there is a high possibility of excess moves in the value of the country’s currency as markets open on the 25th of September.
In the notice, YJFX states that the rates at market open on September 25th and the closing rates from September 22nd may widely differ. The company also states that there is a possibility of changes in exchange rates as the results and the news reports come out in the aftermath. YJFX is urging its customers to be cautious when dealing with the NZD and manage their positions accordingly.
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In a report by Barclays, the bank outlines that the impact of the election on the NZD is overhyped and regardless of the outcome of the election, the currency has a greater potential to weaken as policies of both major parties are not friendly to a strong New Zealand dollar. Growing concerns of currency volatility have led brokers to hedge their exposure.
Recent data from ASB which runs a quarterly survey of importers and exporters is supporting the thesis of Barclays.
“Among reporting enterprises, 44.5% already had increased their hedging activities, with a further 38.5% intending to increase hedging; only 17% cited the election as not having an impact,” the report says.
Volatility in the forex market is not a new phenomenon during election days. In the aftermath of Brexit and the SNB crisis, brokers around the world cut leverage to avoid losses carried on from the positions of their customers. Earlier this year, in the run-up to the UK and the French election, brokers have also decided to reduce the leverage manage to volatility.