The kiwi saw yet another stellar week as NZDUSD bounded more than 300 points from a low of 0.6342 on Monday to a high of 0.6651 on Thursday. Strong economic data and hawkish signals from the RBNZ gave the pair a boost, as the probability that the 200bp carry trade will narrow anytime soon diminished. With the selection of data for next week limited, Kiwi traders may find that moves will be US dollar dependent.
In the week going forward, data will be far more sparse. Midweek, the current account deficit could narrow from the Q1 record of NZ$2.688B, as the terms of trade figure released last week indicated a surge in exports. Soaring oil prices, however, provide downside risk for the balance, as well as resilient consumer demand for imports. Credit card spending could slow once again in August, but retail sales growth could signal that households continued to purchase items via credit. Finally, visitor arrivals could contract following Julys decline of 3.8 percent, and could put a dent into spending figures, as the tourism industry of NZ makes up about 10 percent of the nations economy. The central focus of the week will likely be on the current account balance, but disappointing results may be just what Kiwi bears will be looking for as last week closed out at 0.6619.
The terms of trade index started the past week off with a bang, as the figure unexpectedly rose 0.7 percent in the second quarter versus consensus estimates for a 0.5 percent slip, while the previous period was revised down to 0.9 percent from 1.1 percent. Exports out of New Zealand surged on a 1.5 percent rise in dairy product volumes. Import volumes, on the other hand, actually fell back for the first time in almost two years by 3.0 percent on reduced demand for cars, computers and machinery. Despite the fall in volume, import prices surged 7.2 percent, led by a 15 percent gain in crude oil. Meanwhile, retail sales gained more than anticipated to 0.5 percent in the month of July, led by food and grocieres, as higher transport and wage costs drove up the cost of basic items. Price pressures could be masking actual weakness in consumer spending, however, and does not bode well for the NZ economy. The pressures do, however, bode well for the NZD, as the RBNZ signaled that they could be prevented from cutting rates until the third quarter of 2007. The central bank held rates at 7.25 percent at their September meeting, despite inflation holding at an annual rate of 4 percent in the second quarter. Governor Bollard was forced to defend his inability to keep the rate within his 1-3 percent target band for two years, saying the economy has faced a very big external shock in the form of soaring oil prices, and also a second as house prices accelerated. Economic expansion is still apparent, though, as the labor market has remained tight and retail sales have remained resilient. Furthermore, manufacturing activity gained in the three months ending June to 4.9 percent from an upwardly revised 1.3 percent, led by dairy production, which provided strength to the export figures mentioned above. Results of ANZ Business PMI were not as optimistic, as the index slipped to 53.0 from 53.9 in July. Nevertheless, PMI held above the 50 boom/bust level and continues to signal expansion. Wrapping up the week, Non Resident Bond Holdings fell lower to 67.1 percent in August, but the percentage of foreign investors holding NZ securites is still near Julys record of 69.8 percent.
