nzd fundamentals

New Zealand Dollar Threatened By Global Growth Concerns

Saturday, 20 December 2008 00:33:23 GMT  |  John Rivera, Currency Analyst

Broad based dollar weakness and better than expected fundamental data would drive the New Zealand dollar above the 0.6000 price level for the first time since November 10th. An unexpected increase in business confidence which rose to -35 from -45 and 1.3% growth in manufacturing activity gave hope that the commodity driven economy may be more resilient than expected.

New Zealand Dollar Threatened By Global Growth Concerns

Fundamental Outlook For New Zealand Dollar: Bearish

- New Zealand Business Confidence Unexpectedly Improved To -35 From -45
- Manufacturing Activity Rose 1.3% in the 3Q

Broad based dollar weakness and better than expected fundamental data would drive the New Zealand dollar above the 0.6000 price level for the first time since November 10th. An unexpected increase in business confidence which rose to -35 from -45 and 1.3% growth in manufacturing activity gave hope that the commodity driven economy may be more resilient than expected. However, the numbers were misleading as activity adjusted for inflation actually fell to 2.3% as demand for dairy exports fell. Also,  despite the improvement ion sentiment the reading remained deep in negative territory. As global concerns mounted toward the end of the week the “Kiwi” started to reverse earlier gains falling back below 0.5800.

The economic docket will provide significant event risk for the “Kiwi” in the form of the Westpac consumer confidence reading and the 3Q GDP reading. Growth is expected to have declined 0.5% following a 0.2% drop the quarter prior, which would the straight quarter of declining growth. The New Zealand economy continues to be hurt by falling commodity prices and waning demand for its exports. If the contraction in the quarter was greater than expected, it could weigh heavily on the NZD/USD as expectations are that the current global slowdown will have a greater impact in the current quarter and into early 2009. Oil fell another 20% this past week leading commodity prices lower which is a clear sign that the outlook for the global economy is dimming. The bailout of the U.S. automakers has fueled some risk appetite but it may not be enough to reverse overall sentiment which could lead to the carry trade continuing to unwind. The 50-day SMA could serve as support at 0.5689, a break below there would leave the 20-Day SMA as the next target at 0.5515- JR

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