The New Zealand dollar held the distinction of being one of the top market movers over the past week, and it is easy to see why. Pushing a 155-point range from the open Monday to the close on Friday, kiwi sits only a short distance from marking a fresh eight-month high. Looking ahead to this week, the question now becomes whether the fundamental data on the agenda is potent enough to encourage the extra boost needed to achieve such highs. And while there are a number of high profile, market-moving indicators lying in wait, speculation surrounding each will likely be grounding for traders who go by the name alone.
Picking up the pace from the previous periods stale data flow, this coming weeks calendar is well stocked with gauges that hold serious rally potential. Monday pulls back the flood gate with a two inflation numbers, one much more highly anticipated than the other. The lesser of the price gauges measures the change in a basket of food over the month of September. If the read fall for the second consecutive month as is expected, it would be the first back to back contraction in a year. While inflation in agricultural goods is important for this commodity based economy, the real interest will be with the broader Consumer Price Index released at the same time. Price pressure in the consumer basket is expected to slow to 0.8 percent in the third quarter, following the five-year high 1.5 percent growth in the three months through June. More central to the policy makers decision process are the expectations for the yearly figure which is predicted to slow its tread from 4.0 percent to 3.6 percent. Should these predictions be met, the case for another rate hike would be quite strong as the central bank is charged with keeping medium-term inflation between 1 and 3 percent by the government.
Recently, RBNZ Governor Alan Bollard side-stepped another rate hike by providing an outlook of moderating inflation as global energy prices abate and consumer spending starts to hit an expansionary plateau. However, Bollard was also quoted as saying he is less confident that he could hold off on additional rate hikes, because according to him price pressures are not leveling out quick enough. Likely the key to the entire situation will be to what extent cheaper gasoline has effect the overall CPI. Gasoline prices fell 13 percent from the end of the second quarter to the close of the third. On the other hand, the slow pass through of petrol prices to transportation and airfare, and the method by which the central bank measures the index should keep a large drop in inflation on the part of energy off the books until the fourth quarter. Despite the situation and somewhat certainty surrounding CPI, the rate decision is still predicted to remain unchanged; so whatever happens could be market moving. Following this climax on the week, trade will be the last relevant indicator to digest for the week. There is no official consensus for Septembers physical trade account, but once again imported energy prices will likely play a big part in deflating the deficit. Conversely, exports for the period have struggled with remarkable rates of appreciation in the nations currency against its largest trade partners; namely Japan, Australia and the US dollar.
Though the steady rise in the New Zealand dollar will likely prove detrimental to exports, it has been lucrative to currency traders. Since initiating its now mature bull wave over three months ago, the NZDUSD pair has rallied over 13 percent. And further benefiting those traders on the long side of this pair for the duration was the 1.75 percent positive carry trade. This was undoubtedly a factor in the push over the past week. After testing the 0.6545 low on Monday, the kiwi took off from there. Foreign government bond holdings grew to 68 percent in September to NZ$13.4 billion. Following this report, the NZDUSD proceeded to rally its full 155 points to 0.6700 even before the next releases hit the wires. This run was more than likely carry and technically driven however, as was evident when the visitor arrivals and credit spending numbers failed to keep the fire lit under bulls. In September, tourism slowed 0.3 percent for the smallest monthly change since March. Credit card spending for the year through September on the other hand grew 9.12 percent, and offered yet another indicator facilitating the strong spending habits of New Zealanders that has consistently driven inflation higher.
