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New Zealand Dollar Vulnerable As Domestic Picture Dims
Written by article default Friday, 01 October 2010 03:54
New Zealand Dollar Vulnerable As Domestic Picture DimsFundamental Forecast for New Zealand Dollar: Bearish
* Business Confidence slumped to 13.5 from 16.4- its lowest level in 14 months
* New Zealand’s Trade deficit widened to NZ$437, as exports declined 11.5%
Broader trends drove the New Zealand dollar to a fresh yearly high of 0.7462 despite a dimming domestic picture. A return of risk appetite on the back of strong Chinese manufacturing data helped the com-dollar extend its rising channel. The prospect for QE from the FOMC had been the main driver of price action as anti-dollar flows led to earlier support, with improved US fundamentals sparking a reversal as the prospect for stimulus became questionable. Meanwhile, the outlook for yields took another hit as business confidence slumping to 13.5 from 16.4 and an 11.5% drop in exports points toward slower growth.
The RBNZ maintains that current rates at 3.0% are underpinning the economy, despite 2Q GDP slowing to 0.2%. The central bank paused their tightening cycle at their last meeting as a slower pace of the global recovery forced policy makers to alter their outlook.
Governor Bollard stated that "over time, it is likely that further removal of monetary policy support will be required," the pace and extent of further increases are likely to be more moderate than was projected in the June statement. Markets are still pricing in 51 bps in tightening over the next twelve months but see zero chance that a rate hike will come at the next meeting.
The domestic calendar is empty for the upcoming week with only the ANZ commodity price index on tap. Therefore, expect price action to be driven by broader trends with the U.S. labor report the biggest event risk for the com-dollar. A bout of risk aversion could sink the antipode currency without a domestic fundamental driver to sustain bullish sentiment.