nzd fundamentals

New Zealand Dollar To Hold Bearish Bias On Curbed Risk Appetite

Saturday, 13 December 2008 01:52:22 GMT  |  David Song, Currency Analyst

The New Zealand dollar turned a blind eye to the event risks scheduled for the week as the higher-yielding currency bounced back to pick up 200+ pips against the greenback. However, deteriorating fundamentals paired with dovish commentary by RBNZ Governor Alan Bollard suggests that the central bank will continue to ease policy throughout 2009, which is likely to spur increased selling pressures for the kiwi going forward.

New Zealand Dollar To Hold Bearish Bias On Curbed Risk Appetite

Fundamental Outlook For New Zealand Dollar: Bearish

- New Zealand Retail Sales Drops the Most in 4 Years
- Business NZ PMI Hits Record Low

The New Zealand dollar turned a blind eye to the event risks scheduled for the week as the higher-yielding currency bounced back to pick up 200+ pips against the greenback. However, deteriorating fundamentals paired with dovish commentary by RBNZ Governor Alan Bollard suggests that the central bank will continue to ease policy throughout 2009, which is likely to spur increased selling pressures for the kiwi going forward.

At a government briefing on Thursday, Dr. Bollard stated that he forecasts price pressures to fall further as he expects economic activity to remain subdued throughout the first half of the next year, and explicitly stated that the central bank is ready and willing to lower borrowing costs even further as policymakers carry out their dual mandate to ensure price stability while fostering economic growth. The RBNZ lowered their outlook for inflation to 1.5% as the central bank anticipate growth prospects to weaken further over the coming months, but as economic activity deteriorate at a record pace, downward pressures on price growth are likely to intensify as global commodity prices remain weak. Meanwhile, Credit Suisse overnight index swaps are showing that market participants expect the RBNZ to lower the benchmark interest rate yet again by at least 100bp over the next 12 months despite the extraordinary efforts taken on by the central bank, which supports a bearish outlook for the New Zealand dollar over the near-term.

Nevertheless, as the New Zealand economic calendar remains fairly light over the following week, risk sentiment is likely to dictate price action for the kiwi. Fading demands for carry trades have dragged on the New Zealand dollar crosses throughout the second half of the year, and as the downside risks for growth heighten for the global economy, the commodity currency could face increased selling pressures over the coming week. - DS

Resources

• free demo account
• forex courses
• open an account
• forex stream
• free webinars