nzd news

Weekly Outlook: Kiwi to See Jump in Volatility on Busy Week of Data

Friday, 22 September 2006 19:58:14 GMT  |  David Rodriguez, Junior Currency Analyst

The Kiwi Dollar experienced a relatively quiet week of trading, as early losses on a poor Current Account Balance report paved the way for sideways trading in an otherwise data-barren week. Falling as many as 80 points following Tuesday’s trade news, the NZDUSD pair subsequently stayed within an 80-point range to close the week at $0.6616. The coming week should bring considerably more interest to New Zealand dollar trading, as government officials prepare to release a number of key economic reports on the domestic economy.

To start off the week, trade regulators will divulge import and export numbers for the small island nation. Median analyst forecasts predict that the gap between exports and imports will shrink to 732.5 million NZD, but downside risks remain following recent current account data. Economists expect that declining metals and energy prices may lead to a drop in import prices and therefore an improvement in the overall deficit despite moderating export growth. Domestic production numbers will likewise come into play with Westpac’s Consumer Confidence due Tuesday and NBNZ’s important Business Confidence survey to be released on Thursday. Given the recent bullish turn in theNew Zealand dollar, markets will likely scrutinize these confidence readings to gauge expectations of broad economic recovery. It serves to mention that the most recent Purchasing Managers survey actually showed that businesses were slightly more optimistic on the health of the economy. This will come to nothing, however, if Thursday’s Gross Domestic Product report shows lower than expected growth in the second quarter. Economists believe that the domestic economy grew 0.6 percent in the period, an approximately 1.3 percent annualized growth rate. It will be important to see if the domestic economy can continue to recover from an economic downturn in the final quarter of 2005.

 

The past week’s economic data showed that New Zealand’s Current Account Deficit grew to a record high in Q2, 2006. Despite expectations of narrowing, government officials reported that trade and financial outflows outweighed inflows by 3.048 Billion NZD in the period. Likewise proving negative for the domestic currency, the first quarter’s result was revised down by 70 million NZD to a 2.780 Billion deficit. The subsequent move in the Kiwi Dollar was perhaps less pronounced than one would expect, however, with speculators keeping the NZDUSD above the key 0.6550 mark through the week’s trading. Subsequent economic data showed that Visitor Arrivals posted a recovery in the month of August. After declining a seasonally adjusted 3.8 percent in July, the key measure of tourism growth expanded by 3.2 percent in August. Given that the industry accounts for over 10 percent of national GDP, it will be important to see that it can continue to recover from previous declines. Otherwise,  traders will pay close attention to whether coming economic data can justify the recently pronounced gains in the New Zealand dollar. Given that it has quite surprisingly gained against its Australian counterpart, markets will likely be quick to bid the AUDNZD higher if any upcoming news releases disappoint to the downside. Perhaps tellingly, implied volatilities on the Aussie-Kiwi currency pair options have been steadily on the rise, as markets gear up for increased volatility on significant economic data.

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