Daily Economic Commentary: New Zealand

[PipDiddy]

The Kiwi was off to a strong start yesterday as it initially raced for gains against the greenback. However, its rally was short-lived since it took a U-turn upon reaching the 0.7200 mark.

Only a couple of low-key reports were released from New Zealand yesterday. These were the Business NZ manufacturing index and the food price index. New Zealand's manufacturing industry expanded again in May, judging from the manufacturing index which rose from 56.7 to 58.9 during the month. This marks the indicator's third consecutive monthly increase, implying that the manufacturing sector is getting back on its feet. Meanwhile, the food price index, which is sometimes considered a leading indicator of consumer inflation, logged in a 0.5% dip for April.

Today would probably be a much more exciting day for the Kiwi since New Zealand's retail sales figures are on deck. After sliding down by 0.6 in March, retail sales are expected to bounce back by 1.2% in April. Core retail sales are also expected to rebound by 1.5% from the 0.9% drop seen in March. Watch out for the actual results at 10:45 pm GMT!

[PipDiddy]

Positive data on Australia’s employment report helped the Kiwi post some minor gains yesterday. By the end of the US trading session, the NZDUSD traded at 0.7148, up 20 pips from its Asian session price.

Early on today, however, the Kiwi found itself dropping lower across the board. New Zealand’s retail sales in March, which was initially expected to climb by 1.1%, showed a mere 0.5% increase only. Meanwhile, the retail sales report that excluded automobile sales revealed a 1.1% rise, which was also below forecast.

No more data left on New Zealand’s economic cupboard for the rest of the week, so the NZDUSD’s price action would most likely be directed by risk aversion/appetite flows and data coming out of the US. Keep an eye out for that 0.7100 psychological support level folks, as a break in that level could push the NZDUSD back to the previous week’s low.

[PipDiddy]

Once again, the Kiwi dropped as dollar bulls took over the markets last Friday. Still, looking at today’s chart art, it looks as if the pair is merely staying within a rising channel. Will support continue to hold this week?

Later today, quarterly producer price index figures will be available tonight at 10:45 pm GMT. The report measures the change in prices that producers pay for their raw materials. It is a measure of inflation because companies normally pass on these costs to consumers to bear the burden. Thus, rising input prices normally lead to an increase of the price of the final product. Input prices are expected to have risen by 0.5% during the first quarter of 2010, which would be a slight improvement over the previous quarter’s increase of 0.3%.

I point this out because there has been speculation that the RBNZ may actually decide to hike interest rates soon. This speculation however, was somewhat muted when retail sales data came in disappointing last week. If today’s report indicates that inflation is still subdued, it may give less incentive for the central bank to hike interest rates, as it would suggest that the economy isn’t improving as much as they would like.

[PipDiddy]

The Kiwi was unable to take flight yesterday as it crashed below the psychological 0.7000 level against the greenback. Risk aversion, spurred by the usual fears of a debt contagion, and the slide in oil prices dragged the Kiwi down.

Yesterday, New Zealand released its services index, which revealed that the services sector expanded for the sixth straight month in April. However, the reading fell a few notches from 56.7 to 54.1, signaling that the pace of expansion slowed.

Also released yesterday was New Zealand's producer price index which posted a 1.3% increase in input prices and a 1.8% rise in output prices for the first quarter of 2010. Both figures outpaced the consensus of a mere 0.5% increase in input and output prices, suggesting that the pickup in economic activity kept inflation rising at a strong pace. These better than expected figures provided a bit of support for the Kiwi, which was able to bounce from a low of 0.6917.

Later today, New Zealand will release the RBNZ Financial Stability Report at 9:00 pm GMT. This report would contain the central bank's view of inflation, growth, and other economic conditions that will affect interest rates in the future. Hawkish remarks could help the Kiwi pull up from yesterday's drop.

[PipDiddy]

For the third consecutive day, the Kiwi bowed down to dollar’s unyielding strength. The strong case of risk aversion pushed the Kiwi down to 0.6862 by the end of the US trading session, almost 90 pips lower from its opening price during the Asian session.

The Kiwi took another hit earlier today when Reserve Bank of New Zealand’s financial stability report revealed that the country’s economy remains particularly fragile. Although the overall economic outlook has improved, the RBNZ indicated that the sovereign debt concerns facing some euro zone nations could indirectly affect global recovery. Traders saw the report as bearish for the Kiwi, as the fragility of the ongoing economic recovery could force the RBNZ to sit on their hands once again on its next interest rate decision.

No data on New Zealand’s economic plate today, but we will see New Zealand’s annual budget release at 2:00 am GMT tomorrow. The release details how the government plans to spend its budget for the year. This is important for traders because government spending accounts for a significant chunk of the country’s GDP.

[PipDiddy]

Did someone just hire a mercenary to take out the com-dolls!? The NZDUSD was part of the big com-doll hit yesterday, as it dropped another 90 pips to end the day at 0.6621.

Similar to the moves seen in the AUD and CAD, the Kiwi has been caught up in round after round of broad based commodity selling. Debt contagion fears have sparked risk aversion, which has also led to traders shifting their positions away from higher yielding currencies like the NZD.

Still, the Kiwi’s losses weren’t as severed as those of its com-doll brothers. It found some support when the government’s budget balance plan was released. According to the plan, the Kiwi government will raise sales tax from 12.5% to 15%, while cutting income taxes. This would hopefully cut the government’s debt to GDP ratio of 90%, allowing the country to post a surplus by 2016.

I can see why traders saw this as goods news for New Zealand – governments around the world are busting their butts to fix their budget s to avoid a sovereign debt crisis that are breaking out like pimples on the euro zone’s face.

No data is coming out from New Zealand today, but that doesn’t mean you can rest on your heels. Make sure you got your dance shoes on, as we may see some large swings to end the week!

[PipDiddy]

Similar to its com-doll brothers, the NZDUSD bounced back in Friday’s trading session after a series of losses to begin the week. The pair closed at 0.6783, after hitting as low as 0.6682 last week. Was the rebound merely a case of some profit taking that took place?

Thanks to a return of risk appetite, the Kiwi was able to get receive some much needed relief. My only question is, have we seen a bottom or will risk aversion continue to push higher yielding currencies lower ?

Tomorrow at 3:00 am GMT, we could see some volatile moves when the quarterly inflation expectations report comes out. Traders will be looking out for this report, as it could signal what direction the RBNZ will take with regards to interest rates. If there are signs that inflation is rising, could this given reason for the central bank to raise rates sooner rather than later? In any case, make sure you have your forex seat belts on cause we might be in for a wild ride!

[PipDiddy]

Monday wasn't such a hectic day for the NZDUSD as it cruised idly above the 0.6700 handle. With most traders off on a holiday and with not much economic catalysts on deck, the Kiwi was able to hold on to its recent gains.

Today, New Zealand is set to release a report on inflation expectations for the quarter. Last time, the report showed that business managers expected annual inflation to reach 2.7% for the next couple of years. Note that inflation expectations have been rising for the past four quarters, suggesting that a higher figure could be seen this time around. If this happens, expectations of an interest rate hike from the RBNZ could also increase, which would be bullish for the Kiwi. Watch out for this report at 3:00 am GMT.

[PipDiddy]

The NZDUSD found itself holding on to the short end of the stick yesterday. The pair ended the day at 0.6681, almost 40 pips lower from its Asian session price.

The lack of hard-hitting economic data put the NZDUSD at the mercy of risk aversion yesterday. This time, debt concerns stemmed from Spain… Apparently, a couple of its local banks were forced to band together and merge to soften the blow of falling revenues.

No data coming out again today from New Zealand, so the NZDUSD’s price action will most likely be driven by economic data from the US, particularly the reports on durable goods orders and new home sales.

[PipDiddy]

With not much big moves yesterday, the NZDUSD kept within its range and channeled lower. At the end of the day, the pair closed slightly lower at 0.6632. Will we continue to see the pair channel lower?

With summer coming up, we may continue to see similar movement in the forex markets, especially in pairs like the NZDUSD, which isn't as volatile as some of the other majors. In any case, look out for any big news coming out from other developments around the world, like in Korea and in the euro zone. Any surprise news may cause sentiment to shift quickly, which may lead to some strong moves in the NZDUSD.