In fact, the rise that we saw over the past week is the biggest that we have seen over the past two years. Aside from today, the NZD/USD recorded positive gains every day this week. Although Fridays candle is showing a sign of exhaustion, the move in the <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />New Zealand dollar has been extremely impressive. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
In the week ahead, the only piece of data on New Zealands calendar is the ANZ Commodity Price survey for the month of August. Prices are expected to decline according to softer leading indicators in some of New Zealands key export markets. The lack of any other economic catalysts next week could lead to a much needed correction in the currency. Recent economic data has pointed to more weakness than strength. Over the past month, we saw a sharp rise in the trade deficit and a drop in business confidence. The strong level of the Kiwi will only further deteriorate the countrys trade balance by taking a big toll on exports. However, the high level of inflation has prevented the central bank from dropping interest rates to boost the economy. Reserve Bank Governor Bollard has already said that it will be difficult for them to drop interest rates from its present level of 7.25 percent for some time as growth for consumer prices in the second quarter hit a five year high.
Last week, New Zealand reported stronger building permits and money supply but a weaker business confidence report. Taking a closer look at the data, we see that the NBNZ business confidence survey dropped from -31.1 to -33.9 in the month of August, a five month low. The high price of gasoline and interest rates kept businesses pessimistic. Only 28 percent of the companies surveyed expect an uptick in sales over the next 12 months. Building permits rebounded 15.1 percent in the month of July after a 12.3 percent drop in the month of June while inflation remains a concern following the rise in money supply.
In contrast, Australia has a great deal of economic data due for release next week. The Australian economy has been performing extremely well and we expect retail sales next week to reflect that, especially since the data was taken after the countrys large tax cuts. This suggests that we could see a bottoming in of the AUD/NZD currency pair after this past weeks sharp losses.
