No longer is the kiwi economy not attractive for investment, it now sports a record current account deficit of NZ$4.1 billion, equivalent to a staggering 9.3% of the economy. Not surprisingly, currency traders responded as they should have by abandoning long kiwi positions while many heaped on the shorts. This weeks lineup could build positive energy needed to pull the New Zealand currency out of its nosedive, however it will likely do little to fundamentally improve the outlook for the struggling island economy.
Bringing out the big guns only by mid-week, second quarter consumer confidence and the trade balance for May will pick up volatility from the kiwi side on Wednesday morning in New Zealand. Consumer confidence will have little foundation for a positive turn. For the past three months, consumer have witnessed an unemployment gauge for the previous three months rise to 3.9%, producer output prices pushing inflation higher, retail sales suffer, gasoline prices soar and most recently a trade and capital shortfall that is among the worst in the industrialized world. While there have been a few blips of stronger economic data, it should not even dent the solid façade of pessimism that pushed the previous measure to its lowest since 2000. The other release for the session, Mays trade balance, could keep its head above water. Hints to this fact were, first crude and gasoline prices backing off of Aprils all-time highs. Also, the steady effects of a declining currency have proven beneficial for business, as both confidence and the survey of activity had improved for the month. After these two releases, the potency of the remaining data will fizzle out. The governments coffers will be filled by skimming from the top of business revenues, but will in turn be emptied by a weakening labor market. Money supply, often an unbiased measure of the central banks efforts to control inflation, as it is more readily used, should continue to hold the central banks faucets wide open. Policy accommodation has been necessary to keep up with unrelenting spending habits that have pushed inflation beyond tolerable levels. Finally, building permits will reveal the conviction of those looking to break ground on residences with lending rates in the stratosphere and employment and wage growth lagging.
Last weeks economic flow was comprised of perhaps the worse indicators at the worse time. Before the first release could hit the newswire, the New Zealand currency was showing some signs of life after seemingly skimming the bottom around 0.6150 before picking back up 75 points against the US dollar. The first jolt of fundamental reality however came from the read on Mays tourist numbers. Visitor arrivals dropped 1.3% for the month, which put a damper on the tourism industry, which represents nearly 10% of the economy. Following on the slightly dour data, the indicator most kiwi traders had been expecting and dreading took the market. New Zealands long-standing current account deficit, though contracting for the quarterly basis, swelled on an annual basis to NZ$4.1 billion. The culprit for the unfavorable conditions higher energy prices and higher interest and dividend payouts abroad. Now account for 9.3% of GDP, RNBZ governor Alan Bollard predicts the account balance to be even worse in a years time, turning the short, medium and long-term economic outlooks down. This situation may even lead to Standard and Poors to once again reconsider the nations excellent sovereign credit rating and further diminish the desire for New Zealand assets and therefore the currency. Following the news, the kiwi began its 180 point descent against the US dollar, unswayed by an 11.5% jump in credit card spending in May and first quarter GDP that matched expectations of a 0.7% rise, following a fourth quarter contraction.
