The downturn in the global financial market paired with fading risk sentiments has triggered bearish price action for the New Zealand dollar, but mounting hopes for the U.S. bailout package has certainly helped to calm fears, and led the high-yielding currency to bounce back at the end of the trading week. As the New Zealand economic calendar remains bare for the following week, macro drivers such as commodity prices and risk appetite is anticipated to spur price action for the Kiwi.
Fading Risk Appetite to Fuel Bearish Sentiment for the Kiwi
Fundamental Outlook For New Zealand Dollar: Bearish
- Demands for High-Yielding Currencies to Falter as Financial Uncertainties Linger - Interest Rate Expectations to Drag Kiwi Lower
The downturn in the global financial market paired with fading risk sentiments has triggered bearish price action for the New Zealand dollar, but mounting hopes for the U.S. bailout package has certainly helped to calm fears, and led the high-yielding currency to bounce back at the end of the trading week. As the New Zealand economic calendar remains bare for the following week, macro drivers such as commodity prices and risk appetite is anticipated to spur price action for the Kiwi. On Thursday, commodity prices plunged as the U.S. dollar surged to a one year high against the euro, with investors moving in to buy up the greenback as the U.S. Senate voted 74-25 in favor of the revised rescue package. High hope that the bailout plan will ultimately pass through the Congress this time around has deferred investments for commodities and high yielding currencies, such as the New Zealand dollar, and led the Reuters/Jefferies CRB Index of commodities to fall 9.9%, which was the biggest decline since record keeping began in 1956. Gold futures for December delivery slid 4.8% to close at $844.30 an ounce, while crude oil futures lost 4.3% to end the trading session at $93.97 a barrel on the New York Mercantile Exchange. The recent drop in commodities suggests that the bullish outlook for the U.S. dollar will continue to drag on the Kiwi, especially as the RBNZ is anticipated to lower their benchmark interest further as the economy slipped into a technical recession. Overnight index swaps are showing that market participants have already raised bets that the central bank will cut another 150bp over the next 12 months, which would ultimately fuel bearish sentiment for the New Zealand dollar going forward. Indeed, the U.S. financial crisis has spread throughout the global economy, and may continue to limit investors willingness to jump into higher risk/reward investments in the near-term as market regulators begin talks of revamping the structure of the financial sector. - DS