The strong bidding the kiwi has found since the beginning of July held through last week as an unusually full calendar printed positive economic reads and New Zealands Finance Minister hinted at condoning tighter monetary policy to stem the high inflationary gauges the island nation has reported in the past months.
This coming week has considerably fewer indicators set for release, not desirable conditions for traders who are banking on an eventual move beyond the key resistance level around 0.6440. First out of the chute are outstanding credit car spendings for the month of July. While there is no consensus surrounding this figure, as it is generally ignored by the market, there will be significance in the specific release. The relevance of this reading hinges on the worries of worries of officials, monetary policy officials most importantly, as it will offer an advanced look into spending and, indirectly, inflation. Consumer spending has kept inflation far beyond the Reserve Bank of New Zealands tolerance level, even as exports lag and the economy shows signs of turning. Officials will be looking for any signs that New Zealanders are beginning to control their aggressive spending habits through borrowing against their houses as many come to the realization that the economy is well beyond the turn in the economy. The next indicator is not to be released until Thursdays report on the trade account. Julys trade deficit is expected to worsen for the fourth month. Predicted to widen to NZ$450 million, the shortfall would be the worst since January and reflective of a more expensive currency over the month and declining values of the countrys agricultural exports. At the same time, imports will heavily boosted as prices for gasoline and crude oil hit the countrys infrastructure on the consumer and producer levels. Rounding out the week on a light note, food prices for July will be reported with little fan fare. Neither a reliable measure of broader inflation or commodity export prices (both are accounted for in different indicators), food prices could continue to grow into the winter months as fruits and vegetable harvest thin out.
After some five weeks of strong rally, the kiwi was still able to squeeze out another 100 points against the dollar as releases alleviated some of the negative sentiment surrounding the currency and its ailing economy. From the beginning of the week, the NZDUSD was finding difficulty in moving beyond the 0.6375 level it has had trouble dealing with in the past. This was the product of retail sales reads that were not encouraging but were better than expected. Sales in June rose 0.1%, a meager showing compared to the previous months revised 1.5% figure but better than the 0.4% contraction predicted by the market. A number of factors were contributing to the fourth consecutive monthly positive read in the indicator. Primarily, the increase was centered around a falling jobless rate accompanied by 3% wage growth. Consumer spending is playing a conflicting role in New Zealand today. It accounts for a weighty 60% of the NZ$108 billion economy, but it is also the primary source of inflation that is, according to the latest reading, at 4%. The second figure for the week came on second quarter job vacancies. According to ANZs report, the vacancy rate rose to a five-year high, 9.4% in the three months ending in June as companies place ads in an effort to counter a constricted labor pool. Tuesdays producer prices were undoubtedly the most influential data for currency traders for the whole week. In the second quarter, both input and output prices jumped a greater than expected 2.7%. While the pass through to the consumer was easily facilitated given the spending habits of New Zealanders, the input was more of a surprise. The bulk of the pressure was attributed to firms who needed commodity prices such as fuel to run their businesses. Annually, inflation on the factory level accelerated 7.8%, the highest in five years. These numbers call into memory, RBNZ governor Alan Bollards comments that he would not cut the nations overnight lending rate with inflation so high. With prices this high and the consumer sopping it up happily, the bank may even need to tighten rates if the data doesnt begin to moderate. This theory is further supported through commentary offered up by Finance Minister Michael Cullen who said New Zealand is facing uncomfortably strong inflation with the current condition of employment and the nature of fuel prices. With these figures continuing to support higher inflation and growth still above water, a rate hike is well within the realm of possibility by the first quarter of 2007.
