What cricket can teach us about currencies

I have a lot of cricket fans in my office and it is that time of the year again -- the excitement during the Ashes is palpable.

I can't count myself as one of them, nor do I have profound knowledge of the game, but a crash course has taught me that the Antipodean teams often win, while the English team has a tougher time. Indeed, Sunday marked a crushing defeat for England against the Aussies in what media are calling a "bloodbath."

But in the currency markets - a world more familiar to me than cricket – the tables are turned.

John Phillips | Digital Editor | CNBC

Sterling seems to have hit a 6, thanks to Bank of England Governor Mark Carney's warnings about a rate hike "moving closer."

Meanwhile, the Australian dollar (AUD), weighed down by commodity price weakness, is languishing at 6-year lows and the New Zealand dollar (NZD) is getting out for the golden duck (OK, enough with the cricket idioms now), having fallen some 17 percent against the U.S. dollar in 2015, not helped by the increasingly hawkish Federal Reserve.

At the start of 2014, economists at HSBC called New Zealand's economy the "rock star" of 2014. It was expected to outperform most other G-10 countries as a result of construction spending, the country's booming housing market and -- maybe most importantly -- rising dairy prices supported by strong demand from China. New Zealand is the world's biggest dairy exporter, accounting for a third of the world's trade.

Even if you are no economist, you will have heard that the once-insatiable Chinese demand has since slowed. Dairy prices have gone bad. The price of skimmed milk powder has slumped by almost 50 percent over the last 12 months, according to Global Daily Trade. While the Reserve Bank of New Zealand (RBNZ) was the first G-10 central bank to hike rates after the crisis in 2014, it has now dramatically reversed course.

In June, the RBNZ slashed interest rates for the first time since 2011 in response to the drastic fall in dairy prices. The market is now pricing in another cut as early as this Thursday, as well as in August.

"Given the weak rate of underlying inflation and steep falls in dairy prices, we recently shifted our profile to include easing at every meeting up to and including October," economists at RBC wrote in a note last week.

Analysts as Barclays see a continued weakening of the NZD as one of their top trends for the third quarter.

"NZD weakness has been a standout in Q2 2015. Important multi-year range breakouts in NZD/USD and crosses such as GBP/NZD set the stage for further NZD depreciation in the weeks and months ahead," they wrote in a note last week. "We also expect NZD to underperform relative to the AUD."

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However, not everyone is as pessimistic on the Kiwi dollar. Analysts at SocGen believe "soft fundamentals and rate cuts are already discounted," and "the market is likely to unwind its shorts after the probable cut at this week's meeting."

"A near term bounce from 0.65 (NZD/USD) followed by sideways consolidation is the most likely price development for the kiwi," they added.

OK, so the New Zealand dollar and the Australian dollar may not score a century this year -- something the Baggy Green and Black Caps are more used to (that is the last cricket insider joke, I promise) -- but aren't we (except for SocGen) a little too gloomy here?

Demand for commodities, be it dairy or iron ore, from China is weakening, but the country's government is throwing all of its available stimulus at the Chinese economy. There is no hard landing in sight.

Plus, we have known for two years now that the Fed will tighten monetary policy. No surprise here.

The world economy is growing, and excessive currency moves usually invite a bounce back. And bouncing back is exactly what the Australian team have done against England right now.

The hope for New Zealand and its economy and currency is that it will do the same.