The kiwi dollar took a turn for the worse during the week, sparked by a central bank decision that was followed by subsequently dovish comments by Governor Allan Bollard. With fundamentals still weak in the economy, visible downside looks to continue in the underlying currency as the NZDUSD pair has fallen through the 0.6250 and 0.6200 figures during the week.
Currently consolidating at the 0.6150, downside remains probable for a test of the even 0.6100 figure. With only the ANZ commodity price survey expected for the week, the scenario is a highly probable one at that. Already cursed with the looser monetary tightening sentiment, the underlying spot may be subject to more downside as the ANZ commodity price report is expected to continue in its suggestions of stalled price increases. Good for the economy, this bolsters the previous decision by the Reserve Bank of New Zealand to keep rates at the current 7.25 percent. It also spurs further ideas that central bankers may in fact be correct and no further hikes are needed. According to the last reading of the survey in the month of June, commodity prices dipped 0.9 percent. However, conversely, there is some speculation of a higher print as commodities have rebounded recently on supply shortage speculation as the incremental pullback was slightly expected following the above 2 percent climb seen in May. Either way, the report may have little impact on an already accepted bearish notion for the spot.
Giving the underlying pair some hope at the beginning of the week was an improved NBNZ business confidence survey. Expected to have fallen in July, with previous monthly indicators, the actual reading improved from a negative 32.2 print in June, being released at a negative 31.1 release. The trade balance additionally improved, although still weighing heavily on the overall economy. Narrowing against the consensus figure, the deficit actually increased against the A$103.5 million shortfall seen in May. As a result, although the market was looking for a far worse figure, the deficit continued to widen and erode at overall economic growth. This led up to the imminent decision by the Reserve Bank of New Zealand to maintain a halting decision on the benchmark interest rate instead of hiking by another 25 basis points in efforts to curb inflation. Not citing potential growth damaging effects, central bankers noted that inflationary pressures look to abate in the coming quarters and to decline below the benchmark 3 percent rate in 2007. As a result, this led many market participants in gauging a potential easing campaign to begin as soon as the December 2006, lending to a Kiwi bearishness in the near term. Already offering the highest rate of return of the major industrialized countries, the notion of theres no where else to go but down is beginning to emerge, potentially spelling further declines in the underlying.
