The Kiwi dollar saw a tumultuous week of trading, as an early bullish run pushed it to fresh 7-month highs, while a later reversal saw it below the previous weeks close. Earlier hawkish commentary from RBNZ Governor Alan Bollard was enough to push the Kiwi towards its highs, but subsequently dovish commentary from Finance Minister Michael Cullen allowed Kiwi-bears to pull the currency lower. The upcoming week looks to provide little in the way of data, but markets will brace for any new official commentary on the future of monetary policy.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
As the only significant economic data release for the week to come, ANZ Commodity Prices look to gain on rising commodity prices. The number is the broadest measure of prices received for domestic agricultural goods, which represent a significant share of the countrys total exports. Given that recent Trade Balance and Current Account data has continued to disappoint, markets will watch the ANZ Commodity Price index for any indications of substantive weakening or improvement. Otherwise, the Kiwi dollar will likely trade on a busy week of Australian economic news. Upcoming releases include the RBA Cash Target decision, Retail Sales, and the all-important Trade Balance report. Any surprises in these key figures could translate into price movements in Kiwi dollar pairs.
The past week of economic data saw disappointing developments for the New Zealand economy. Starting off volatile trading, a national Trade Balance report came in well under initial expectations. In last weeks outlook report, we claimed that downside risks remained for the outlook on the New Zealand trade report following the weak Current Account balance figure. Indeed, we were not entirely surprised when the trade deficit was materially larger than market expectations, printing at NZ$961.4 million versus median estimates of NZ$715.0 million. We were surprised to see, however, that the considerable decline in the trade gap came on much lower export figures. The export industry has been a saving grace of the New Zealand economy, with a weak domestic currency serving to boost competitiveness abroad. That same currency weakness has likewise translated into expensive imports, however, thereby offsetting export levels at or near record-highs. Thus the fact that a worse deficit came on falling outflows worsens outlook on the broader economy, and recent GDP data likewise showed lower potential for growth. Despite median expectations of a 2.1 percent annualized rate, the pace of economic growth fell to 5-year highs to 1.9 percent. Needless to say, this did not bode well for the New Zealand dollar, as trader subsequently bid it lower against major currency pairs.
The outlook currently remains dim for the New Zealand Dollar and its domestic currency, with many analysts claiming that recent overvaluation will bring sharp declines to send it to more reasonable price levels. From a technical standpoint, the NZDUSDs failure to brea k past significant resistance at 0.6700 hints at the potential for furth er losses.
