So you think you want to trade currencies. You better be up to date on the butterfly effect, or in this case – the Cow effect. While we doubt milk production is part of many traders’ currency market evaluations, it looks like it has become a factor for one currency – the New Zealand Dollar.
You see, earlier this week, China banned milk from New Zealand because of bacterium that could cause botulism. Kind of makes you remember in a Steven Wright sort of way that we’re the only mammal which drinks the milk of another mammal.
The news was enough to send the New Zealand Dollar down around 1%, leading headline grabbing Business Insider to declare “Dairy Scare Is Causing Chaos For The New Zealand Dollar”Read more: with the following comments.
“China accounts for 25% of demand for New Zealand’s milk. In fact, China’s milk powder imports from New Zealand climbed 34.3% year-over-year in the first half of 2013. This accounted for 83.3% of China’s total milk powder imports. This shows why a botulism scare is huge not just for China but New Zealand as well.”
And this lovely New Zealand Dairy Industry infographic:
Infograph Courtesy: Reuters
Thing is – the New Zealand Dollar being down 1% on the open really wasn’t the ‘chaos’ Business Insider explained it as… The average daily move of the NZD so far this year has been .73%. What they are really trying to do is get eyeballs and sell online ads – not provide actionable intel on the factors contributing to currency moves. There’s an old line about “just trying to sell newspapers”…
From our standpoint – one day’s move in the NZD doesn’t really amount to much in the grand scheme of things. Systematic strategies don’t care why the New Zealand dollar is falling, they don’t predict disruptions because of mad cow of botulism…. And they certainly don’t sell into a move because they read about it on Business Insider. If anything, a discretionary professional trader would likely buy the NZD on such news in a sort of sell the rumor, buy the fact contrarian play.
Beware those ‘trying to sell newspapers’…