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New Zealand Dollar Outlook Points to Additional Losses

New Zealand Dollar Outlook Points to Additional Losses

2011-02-04 22:20:00
Michael Wright, Currency Analyst
Share:
New_Zealand_Dollar_Outlook_Points_to_Additional_Losses_body_TOF204nzd.jpg, New Zealand Dollar Outlook Points to Additional Losses

New Zealand Dollar Outlook Points to Additional Losses

Fundamental Forecast for New Zealand Dollar: Bearish

The New Zealand dollar fell 0.76 percent against the U.S. dollar this past week and may continue its southern journey against the greenback during next week’s trade as growth expectations push lower amid weak fundamental developments in the region. As the kiwi is expected to come under increased pressure, currency traders will look for the NZDUSD to test 0.7640, with a break below exposing 0.7590.

Adding weight to the New Zealand this past week was a dismal employment report paired with a bout of risk aversion as uncertainties surrounding the global recovery resurface. With regards to the former, employment in the fourth quarter tumbled 0.5 percent after climbing 1.1 percent during the three months through September amid economists’ expectations of 0.2 percent. At the same time, the unemployment rate increased to 6.8 percent. The reading does not bode well for the region and suggests that the economy is struggling to recover from its September earthquake. Growth concerns paired with the governments’ difficultly to tackle stimulate export growth and investments are the key drivers behind the decrease in interest rate expectations. As recent fundamental developments paint a bearish picture for the kiwi, dismal economic releases next week may only add color to the dour outlook in New Zealand.

Home prices data highlights the economic calendar in New Zealand next week. Indeed, house prices fell 0.9 percent in December. As the housing market throughout 2011 is expected to remain sluggish, market participants should not rule out a dismal release. Developments hinting a disappointing release include a high unemployment rate, subdued property price growth, and weak consumer spending. Taking a look at price action, the pair has extended its two day loss and now looks poised to head lower as the weekly chart remains capped by a descending channel that has remained intact since November. So long as the pair remains capped by the 10-day SMA, downside risks remain. A clear break and close below 0.77 exposes the 0.7610 area. -MW

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