The New Zealand Dollar found support against the dollar toward the end of last week on hawkish comments from RBNZ Governor Allan Bollard and an increase in risk appetite. Following the expected 50 bps reduction the central bank head stated that rates were at a “very stimulatory level” which markets took as a sign that the current easing cycle could be coming to an end.
[B]New Zealand Dollar May Remain Supported By Increased Risk Appetite[/B]
[B]Fundamental Outlook For New Zealand Dollar: Bearish[/B]
- NZ PMI Fell to 38.6 from 41.8 in January, which was the 10th straight monthly decline
- NZ retail sales fell by 1.1% in December led by a drop in car and fuel sales.
- RBNZ cuts official cash rate by 50 bps to 3.00% as economy contracts further
The New Zealand Dollar found support against the dollar toward the end of last week on hawkish comments from RBNZ Governor Allan Bollard and an increase in risk appetite. Following the expected 50 bps reduction the central bank head stated that rates were at a “very stimulatory level” which markets took as a sign that the current easing cycle could be coming to an end. Traders were focusing on the rate decision after the RBA unexpectedly left their benchmark rate unchanged which had raised speculation that the RBNZ would follow suit. However, in a subsequent interview Governor Bollard hinted at another 50 bps cut as the economy was entering its fifth quarter of contraction. He did express that the central bank was comfortable with current inflation levels and that the recent devaluation of the country’s currency was fueling demand for its exports which would support the case for a pause in easing.
The upcoming quarterly manufacturing activity survey may give us some insight into the impact of the weak “Kiwi” on the economy. However, we may see that the damage from the global credit crisis on demand is having a greater than expected impact on activity, especially since the reading is based on the 4Q of 2008 when the crisis was at its peak. The performance of service, credit card spending and visitor arrival indicators may provide better insight into the current state of the economy as they are all February readings. Although individually they may not prove to be market moving, if the sum of their results paints a rosier picture then we could see additionally support for the New Zealand dollar. The main driver of price action in the upcoming week could be risk appetite. Global equity markets started to pick up steam to end the week as the banking sector started to show signs of life with Citibank and Bank of America predicting future profits. However, the G-20 meeting this weekend is already starting to show that global leaders may not be able to come to a consensus on future action as French and German leaders are already providing opposition to U.S. Treasury Secretary Tim Geithner’s call for more spending from nations to help boost growth. Lack of results following the summit could spark a bout of risk aversion similar to the fallout from the toothless G-7 meeting. The NZD/USD is finding resistance at the 50-Day SMA at 0.5263, the technical level has proved formidable since January 13th. Therefore, we could see a retracement of recent gains to support at the 20-Day SMA at 0.5071. Yet, if bullish sentiment leads to a break above then the 100-Day SMA at 0.5449 could be in sight.-JR