New Zealand Dollar price action is likely to follow a similar pattern to that of its Australian counterpart, falling in with broad trends in risk sentiment.
Fundamental Outlook For New Zealand Dollar: Bearish - RBNZ Surprises, Cuts Interest Rates by 50 basis points - New Zealand Retail Sales underperform, support more rate cuts Economic data is likely to continue to disappoint next week. The second-quarter Current Account figure is easily the most significant, with expectations calling for the deficit to widen to –NZ$3.5 billion versus –NZ$2.16 billion in the three months to April. Indeed, import volumes were surely inflated by higher fuel costs. Crude mounted a breakneck rally through much of the second quarter, reaching record highs at $147/barrel in mid-July before a sudden collapse that would see prices fall over 32% to date. Elsewhere on the docket, growth in manufacturing activity has slowed nearly 56% in the three months to April and is likely to continue along the same trajectory in the second quarter. Visitor Arrivals improved a bit to 2.1% in July but are unlikely to maintain meaningful momentum in August. While July’s collapse in crude boosted disposable income and made travel cheaper, traders are unlikely to see substantial changes in travel patterns for some months as shifts in the commodity markets filter into the broad economy. Furthermore, tourism growth is likely to be limited from a cyclical perspective, with most people returning to work in autumn. Finally, Credit Card Spending will likely remain weak in August as consumers weigh up the slowing economy and tighten their belts. On balance, New Zealand Dollar price action is likely to follow a similar pattern to that of its Australian counterpart, falling in with broad trends in risk sentiment. If the sale of Lehman Brothers goes off smoothly while the coast remain clear of major default risk elsewhere, the New Zealand dollar will have room to retrace recent losses against the greenback. Otherwise, the Kiwi will continue to sink along with stocks and most other major currencies as the US dollar continues to rally. - IS