The New Zealand dollar rallied for three consecutive sessions for the first time since September, and despite the minor pullback on Friday, the NZDUSD picked up 300+ points for the week. However, the underlying weakness in the global financial market may continue to limit demands for high-yielding assets, which would stoke increased selling pressures for the kiwi-dollar over the following week.
Fundamental Outlook For New Zealand Dollar: Bearish - Demands for carry trades plummet on fears of a global recession - Lack of stability in the financial markets continues to drive price action for currencies The New Zealand dollar rallied for three consecutive sessions for the first time since September, and despite the minor pullback on Friday, the NZDUSD picked up 300+ points for the week. However, the underlying weakness in the global financial market may continue to limit demands for high-yielding assets, which would stoke increased selling pressures for the kiwi-dollar over the following week. The lack of stability in the financial sector should continue to drag on carry trades over the coming week, and risk sentiment will once again play a vital role in driving volatility for the kiwi as investors remain fearful of a global meltdown. In addition, expectations of severe downturn in the global economy has certainly take a toll on commodity prices as the Reuters/Jefferies CRB index fell at a record pace during the month of October, which presents a clear indication that the comm. bloc will face further headwinds over the coming weeks as gold and oil prices are expected to tumble lower. Meanwhile, the event risks scheduled for Wednesday is anticipated to spur increased selling pressures for the kiwi as the unemployment rate is expected to jump to 4.3% from 3.9%. As the New Zealand economy slipped into a recession during the first half of the year, further downturns in the economy will certainly raise bets for additional easing in policy by the Reserve Bank of New Zealand, which would only drag on the high-yielding currency going forward. Despite the 100bp cut by the central bank last week, Credit Suisse overnight index swaps are showing that market participants anticipate the RBNZ to deliver another 1% cut over the next 12 months, which favors a bearish outlook for the kiwi in the near-term. - DS Visit our recently updated NZD/USD Currency Room for more resources dedicated to the New Zealand Dollar.