A week of bearish fundamental data and a bout of risk aversion would end up leading the New Zealand dollar to break below the 0.500 price level. The RBNZ lowered its inflation forecast to 2.3% from 2. 5 as it expects growth and employment to deteriorate. The central bank lowered its GDP expectations for the year to 0.1% and predicts the unemployment rate will raise to 6%, the highest since June 2006.
[B]New Zealand Dollar At Critical Support Level, More Losses Ahead?[/B]
[B]Fundamental Outlook For New Zealand Dollar: Bearish[/B]
- New Zealand’s Annual Trade Deficit Unexpectedly Narrowed In January to NZ$5.48 billion on Lower Imports.
- RBNZ Lowered 2-Year Inflation Forecast To 2.3% From 2.7% Due To Falling Energy Costs And Slowing Growth.
- NAB Business Confidence Fell From -35.0 To -41.2 in February, Which was The Second Worst On Record.
A week of bearish fundamental data and a bout of risk aversion would end up leading the New Zealand dollar to break below the 0.500 price level. The RBNZ lowered its inflation forecast to 2.3% from 2. 5 as it expects growth and employment to deteriorate. The central bank lowered its GDP expectations for the year to 0.1% and predicts the unemployment rate will raise to 6%, the highest since June 2006. Reserve Bank of New Zealand Governor Alan Bollard said the economy would not escape unscathed in the current financial crisis, when addressing the 2009 Job Summit in Auckland. Bollard said, “The economy does have a number of imbalances that cannot go on forever and as a result, there are challenges ahead.” He would further describe the global financial crisis as the “biggest destruction of global wealth the world has ever seen”. Indeed, the banking troubles brought on by the crisis in the U.S. and Europe sent traders to the sidelines as fears grow that the frozen credit markets will lead to a deeper global recession.
The central bank is expected to lower their official cash rate by 75 bps to 2.75% on March 11th and the lower interest rate expectations may continue to weigh on the “Kiwi”. The weak currency is actually welcomed by the RBNZ as Governor Bollard stated “the exchange rate is working for us”, “it is helping cushion the shocks, it’s helping make us more competitive.” The lower valuation as helped demand for the country’s exports including milk powder, meat and aluminum. The only fundamental economic release upcoming is the commodity price index which declined last month by 4.3%. The indicator isn’t market moving but another month of falling prices would add to the demand for New Zealand goods.
The New Zealand dollar nearly tested the 2/2 low of 0.4961 which is also being reinforced by Bollinger band support. We could see the NZD/USD bounce from this level after its recent decline, but any bullish momentum may be capped by the 20-Day SMA at 0.5149 which has served as staunch resistance. However, given the expectations of a lower interest rates a break below support leaves the pair susceptible to a drop to the August 2002 low of 0.4484.-JR