Carry Trade Unwinding Accelerates Kiwi Decline

With no apparent end to the aftermath of the US credit scare in sight, the appeal of the New Zealand dollar as a high-yielding currency has lost its steam.

Headlines
Growth in Earnings Continues Strong in Second Quarter
Wage growth remained robust in the second quarter, as the Labor Cost Index printed in line with expectations of a 0.7 percent increase in private sector salary and ordinary time wages. However, the wage growth statistics measured by Quarterly Employment Survey fell short of forecasts, with the Q2 private sector ordinary time earnings rising by 1 percent versus and expected 1.7 percent.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aqkjwy1Daz9E
Source: Bloomberg
Reserve Bank of New Zealand Sold NZ $702 Million During June
Data on the RBNZ?s foreign exchange transactions indicated that the central bank sold NZ $702 million on a net basis in the spot foreign exchange market during June. Although the amount is not a direct index of the amount of Kiwi dollars used to finance the Reserve Bank?s currency market interventions, yet the data fueled speculation the RBNZ may continue to tap into its currency reserves to dampen the exchange rate.


Source: The New Zealand Herald
Slight Pickup in Confidence of Wellington-based Businesses
The first business confidence survey to be released after the quarter-point OCR hike on July 26 indicated that optimism over business conditions, though still low, has recovered. The July survey by the Wellington Chamber of Commerce suggested that concerns among Wellington-based businesses showed some signs of relief.
http://www.stuff.co.nz/4154021a13.html
Source: Stuff.co.nz
Market Activity
Currency Market - NZD:
With no apparent end to the aftermath of the US credit scare in sight, the appeal of the New Zealand dollar as a high-yielding currency has lost its steam. The sharp pullback in global equity markets at the close of Friday?s session further accentuated risk aversion, including a move away from the New Zealand dollar. The Kiwi dollar declined 0.2 percent against the greenback, but found support above 0.7560 USD during the New York session. The NZDUSD cross will derive further direction from the critical FOMC rate decision. The NZDJPY pair, the once-popular long for carry trades, plunged to 88.61 yen, the weakest level since May 31, but recovered to trade above a support of 89.46 yen.
At the close of the trading session in Wellington, the trade-weighted index declined to 72.64 compared with Friday?s 73.60.
[B]NZDUSD (Daily Chart)


[/B]Prepared by DailyFX Research Team
Source: Bloomberg

Equity Market - NZSX-50 Index:
New Zealand?s benchmark stock index plummeted 2.3 percent during early trading but recovered slightly to close down 1.1 percent at 4075.18 on turnover of NZ $135 million. Despite across-the-board weakness in stocks, shares of export manufacturers showed a slight pickup as the retreat in the Kiwi exchange rate has boosted profitability outlook. Stock of Telecom made a comeback, up 3 cents to NZ $435, after dismal annual earnings report shoved the stock down 15 cents at Friday?s close.
[I]NZSX-50 Index (Daily Chart)


Prepared by DailyFX Research Team
Source: Bloomberg[/I]
Fixed-Income Market - 10-year Government Bond Yields:
Demand for government debt continues strong amid a global pullback from riskier asset classes. The yield on New Zealand’s benchmark 10-year government bond dropped by 2 basis points to 6.377 percent.
[I]10-year Bond Yields (Daily Chart)


Prepared by DailyFX Research Team
Source: Bloomberg
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