The New Zealand Dollar had its first positive week in a month as the efforts by central banks around the world restored enough confidence in the markets to end the “Kiwi’s” freefall. The high yielding currency had been on the short end as risk aversion permeate markets as frozen credit markets threatened the global financial system.
New Zealand Dollar May Sink On Declining Interest Rate Outlook
Fundamental Outlook For New Zealand Dollar: Bearish
- Retail Sales Rebounded 0.4% in August, as Rate Cut and Declining Oil Buoy Consumer Confidence - Business PMI Rose Slightly to 47.0 from 45.7, But Remained In Contraction For the Fifth Straight Month. The New Zealand Dollar had its first positive week in a month as the efforts by central banks around the world restored enough confidence in the markets to end the “Kiwi’s” freefall. The high yielding currency had been on the short end as risk aversion permeate markets as frozen credit markets threatened the global financial system. Stronger then expected retail sales at the beginning of the week set the tone for the NZDUSD, but gains were hard to hold onto as the outlook for the global economy dimmed.
The upcoming economic calendar will provide significant event risk with CPI and a RBNZ rate decision on tap. Last year robust growth and inflation fears drove the central bank to raise its rates 8.25% the highest amongst the major economies before it’s recent rate cuts. Therefore, the expected increase in inflation to 5.1% from 4.0% may provide bullish sentiment as rising price pressures may slow the RBNZ’s easing policy and lead to a shallower than expected reduction. Since, the report is quarterly it may not fully reflect the impact of the recent sharp decline in oil prices and therefore may be discounted by traders. Nevertheless, it could be enough to build off of this past weeks gains and have the pair look to test the 0.6500 price level. “Kiwi” bulls may be hard to find heading into the rate decision with expectations of a 100 bps cut. It wouldn’t be a surprise to see a more significant reduction with calls for another coordinated rate cut from the major central banks and Credit Suisse overnight index swaps are pricing another 228 bps. However, since the RBNZ didn’t participate in the last rate cut, inflation may be more of a concern than anticipated and a higher CPI read may cause the MPC to reconsider further easing. However, the slumping global economy will most likely lead to further easing and could send the New Zealand down to re-test the 10/08 low of 0.5786. Technically the 20 week moving average is about to cross below the 200 week average is a strong sign that another steep drop may be forthcoming. - JR