nzd fundamentals

New Zealand Dollar Interest Rate Outlook Weakens Further

Saturday, 10 January 2009 02:31:18 GMT  |  David Song, Currency Analyst

The New Zealand dollar pushed higher against the greenback for the fifth consecutive week as oil prices crossed above $50 a barrel for the first time in nearly a month. The rise in crude drove the commodity-based currency to test 0.6000 during the week, but the sharp pullback in global commodity prices paired with the lack of momentum to close above the psychological resistance continues to favor a bearish forecast for the kiwi-dollar.

New Zealand Dollar Interest Rate Outlook Weakens Further

Fundamental Outlook For New Zealand Dollar: Bearish

- New Zealand Credit Card Spending Falls Further
- Trade Deficit Unexpectedly Narrows as Import Demands Falter

The New Zealand dollar pushed higher against the greenback for the fifth consecutive week as oil prices crossed above $50 a barrel for the first time in nearly a month. The rise in crude drove the commodity-based currency to test 0.6000 during the week, but the sharp pullback in global commodity prices paired with the lack of momentum to close above the psychological resistance continues to favor a bearish forecast for the kiwi-dollar. Meanwhile, deteriorating fundamentals paired with financial uncertainties is likely to weigh on growth for the $128B economy throughout the first half of the year, and as the Reserve Bank of New Zealand is widely expected to continue their easing cycle, the interest rate outlook could drag on the kiwi going forward.

Bearish trends from 2008 have carried through the first full week of trading in the New Year, and is widely anticipated to continue over the first half of 2009 as the outlook for the global economy remains bleak. Central banks across the Pacific (i.e. South Korea, Taiwan, and Indonesia) have taken extraordinary steps this week in response to the significant downturn in the global market, and as growth prospects for the region deteriorate at a rapid pace, the Reserve Bank of New Zealand is widely expected to follow suit. Credit Suisse overnight index swaps are showing that market participants are upping the ante for an aggressive rate cut by the RBNZ as the index slipped to -133.0 from -114.0 in December, and expectations for lower borrowing costs foreshadows the bearish outlook held by investors. Moreover, as global commodity prices remain weak, alleviating price pressures would certainly allow policymakers to lower the benchmark interest rate further over the coming months as the export-driven economy faces its worst recession in nearly two decades. Nevertheless, risk trends will dominate price action for the New Zealand dollar over the following week as the economic docket remains light. - DS

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