One of the few currencies that was able to best its US counterparts influence last week, the New Zealand dollar did so on a few, very impressive indicators. Namely labor costs, employment and business activity reads proved the island nations economy is not easily sinking into a slump. On tap for the coming week are a number of regulars with a few unordinary figures that could boost the second quarter appeal developed with the previous weeks news. Monday, retail sales could sabotage the strength that has underpinned the currency through an impressive rally.
According to economists estimates, June retail sales, and the quarterly figure ending with the same month, are expected to report a 0.4% drop. This compares with a May report of a 1.3% increase and a first quarter 1.0% advance. Basing these predictions on rising consumer prices and evidence that the economy is slowing with firms pulling in less revenue from exports, New Zealanders likely found it wiser to conserve their income rather than continue their heavy trend of spending on credit. Furthermore, though the drop in spending would act as a drag on growth, it could also cool some of the inflationary pressures that plague the RBNZ. Not hours later, a second quarter report of ANZ job vacancies will report potential hiring trends for the coming months. After last weeks strong showing in employment over the same period and blatant signs that the economy is beginning to bow, employers likely started to actively take ads out of newspapers in order to conserve revenues. Following up closely behind with a Tuesday print date, second quarter input and output producer prices will reveal the pass through of inflation downstream. Over the three months beginning in April, a few essential raw material input prices were making volatile moves. Specifically crude prices soared to a record in April, but sharply corrected the following month. These fluctuations, combined with the report of a strong 1.5% accelerating in consumer inflation for the same period, likely translate to a liberal pass of higher cost onto the consumer over the months. Wrapping up the week on a rather tepid note are the usual foreign bond holdings and visitor arrivals for July, released on Wednesday and Friday respectively. Though representing a very attractive yield on debt instruments with an overnight cash rate of 7.25%, risks to such investment with thinning liquidity and the potential for an economic downturn could scare potential investors away. Short-term visitors on the other hand will be determine if their trip to New Zealand is worth the more expensive airfare and cold winter months. If the weeks data can sustain bullish sentiment with better than expected results, a genuine belief that the economy is strengthen could begin to evolve and the currency find a new wind. More realistically however, if the data begins to lag, the currency will once again be sold on fears of an impending recession and perhaps stagflation.
The New Zealand dollar was able to produce and impressive 140 points against the US greenback from peak to trough, even as other currencies were struggling to even produce their own fluctuations against the worlds most liquid unit. This impressive rally was the product of only three indicators, an unusual feat for the kiwi especially at a time when many major banks swear it as the best short available. Starting the action right out of the gates, a second quarter measure of labor costs reported higher earnings for the consumer base, a positive for domestic spending-based growth but at the same time fuel for inflation. In historical perspective, this was on par with the rate for the past three or four years, and well above the pace of price growth. This indicator was responded to with a reserved response in the currency as it kept to a 50-point range with the US dollar. The real bidding came ahead of the quarterly jobless report. According to the government measured figure, unemployment dropped to a record low 3.6% as employers hired 11 times more workers than analysts had predicted. While this was a strong read for growth predictions erring on the optimistic side, it was also interpreted as offering a lack of scope for the RBNZ to cut rates anytime soon. While both are good for currency traders concerned about a rising exchange rate and a solid carry, it also bodes poorly on the economic situation where the central bank can neither cut or raise rates to answer the problems of slowing growth and strong inflation. Finally, rounding out the week was Julys ANZ business PMI. A rise in the report to 53.9 on due to rising demand for good abroad was somewhat diminished in its capacity as a purely positive read as it was still well below the May, 58.2 read. At the final read for the liquid hours, the NZDUSD ended 75 points higher than were it began the week at 0.6335.
