Kiwi Decline to Gather Pace as Global Growth Fears Take Root
Fundamental Forecast for New Zealand Dollar: Bearish
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The New Zealand dollar fell more than 6.3% this week as a massive risk sell-off swept across the globe. Fueling the shift from risk was the FOMC interest rate decision on Wednesday where market participants focused on the central bank’s gloomy outlook for the domestic economy. The Fed cited “significant downside risks” to the economy, sending stocks and risk assets significantly lower. As the second highest yielding currency among the majors, the kiwi came under pressure as traders sought refuge in lower yielding ‘haven’ currencies like the dollar and the yen.
Also weighing on the kiwi this week was a weaker than expected print on 2Q GDP which grossly missed estimates with a print of just 0.1% q/q. The median estimate for the report was for a gain of 0.5%. The print came just one day after a report showed the current account deficit widening to -0.921 billion missing calls for a print of -0.67 billion. The data sent the kiwi to a four month low as interest rate expectations quickly dwindled on speculation that weaker growth and risks of slowing global demand may lead RBNZ Governor Alan Bollard to maintain the record 2.5% cash rate until 2012. Accelerating the decline was a massive global risk sell-off sparked by the FOMC announcement with the NZD/USD closing the week at fresh four month lows.
Next week investors will be eyeing August trade balance figures, building permits, and the September NBNZ business confidence index. The data is expected to show a deficit of 321 million with exports softening to 3.44 billion from 3.72 billion, while imports rose to 3.78 billion from 3.59 billion. The kiwi may continue to come under pressure if the data confirms fears of an economic slowdown in the island-nation as expectations for policy tightening get pushed back even farther.
The NZD/USD pair closed the week just above the 100% Fibonacci extension taken from the August 1st and 31st crests at 0.7720. Interim support rests here with a break eyeing targets at 0.7660, the 0.76-figure, and 0.7570. Topside resistance now stands at 0.7850, with subsequent ceilings eyed at the 76.4% extension at 0.7920, the 0.80-handle, and the 61.8% extension at 0.8040. In the short-term, the pair could undergo a corrective pullback as relative strength enters into extremely oversold territory before moving down into lower lows. -MB
Written by Michael Boutros, Currency Analyst for DailyFX.com
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