Diverging cycles driving FX market

For much of 2013 and 2014, the New Zealand economy has been out of sync with the rest of the world, with New Zealand buoyed by strong commodity prices, record net migration, and the construction boom from the Canterbury rebuild.
That theme of New Zealand being out of sync has continued into the second half of 2014, but now it is a case of the path of the New Zealand economy moderating, while the United States economy gathers speed out of its post GFC recovery. These diverging cycles were the main underlying drivers of a re-emergence of FX volatility in September.

Chart 1. NZ business confidence vs. US Manufacturing PMI

The RBNZ signals a pause and makes a concerted effort to lower the NZ dollar