Weekly Outlook: The Kiwi Braces for US Rate Decision and Aussie Trade Data

The Kiwi traded materially higher on the week despite the lack of any new domestic economic data. <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Indeed, a Friday rally off of a poor US Non-Farm Payrolls report pushed the NZDUSD currency pair 1.4% above Sundays open of $0.6174. Moving forward, traders await upcoming New Zealand employment data as well as a slew of Australian economic reports to gauge whether the New Zealand Dollars recent rally will continue into the medium-term.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Starting off the week of news, economists expect that Sunday nights labor report will show moderately inflationary wage increases and an unemployment rate steady near all-time lows. Private sector wages look to have gained 0.7% in the second quarter, while Wednesdays Unemployment data will likely is likewise predicted to stay the same at 3.9%. With widespread fears of economic slowdown in theNew Zealand economy, such robust labor market data would surely bolster popular opinion of overall growth. To that effect, any disappointments in either number could have the opposite effect?confirming notions of a weakening expansionary trend. Though few expect the Reserve Bank of New Zealand to push interest rates lower through the end of the year, recently renewed interest in the NZD carry trade could come to an abrupt end if the domestic economy shows signs of a marked slowdown. On a related note, the following potentially market-moving event will come just two days later when the US Federal Open Market Committee announces its central interest rate target. With such indecision leading up to an event, it is sure to be quite the rollercoaster whatever the outcome. Finally, Kiwi traders will likely pay close attention to the Australian trade balance report due on early Friday morning. Given that the two countries are such close trade partners, any disappointments in the predicted contraction of the overall Aussie trade deficit could spell declines in the New Zealand Dollar.

 This past week saw relatively little market-moving data out of New Zealand , as the currency traded off of international news instead. A large move came on Tuesdays new Chinese revaluation rumors, as New Zealand s fourth largest import and export market reportedly gears up to allow for more flexibility in its national currency. Furth er strength in the CNY would only help to bolster heightened demand for New Zealand s agricultural commodities and would certainly bode well for the national trade balance. The rally was seemingly short-lived, however, as the NZDUSD traded to the weeks open before Fridays US NFP data. Following the disappointing labor report, the Kiwi dollar rallied against its US namesake on reported carry trade interest. Clearly, a decreased chance of a US rate hike boosts the attractiveness of the NZ currency, the highest-yielding of any country with a top Sandamp;P sovereignty rating. Thus the NZDUSD currently trades firmly above its 100-day moving average for the first time in 7 mont hs. Time will tell if this rally will continue into the medium term.

Economic Releases for August 6 August 11