Daily Economic Commentary: New Zealand

The NZD was pretty quiet last Friday as it just traded side wards within a tight 70-pip range. No economic data from New Zealand was also released, keeping volatility low. Price movement would probably come back in full swing this week as the Reserve Bank of New Zealand is scheduled to release its interest rate decision on Wednesday, 9 pm GMT.

Interest rate decisions usually have a drastic effect on the foreign exchange market. The reason behind this is that investors tend to purchase securities that pay larger interest rates. All things being equal, it�s only logical for people to put their money wherein the yield is greatest. New Zealand�s benchmark interest rates currently stand at 2.50%, which is pretty high compared to how low interest rates are in the western part of the globe. This gives New Zealand�s central bank a lot of room to move with regards to interest rate cuts to ease the recession�s grip on the economy. With all these signs from economic data that the global recession is easing, economists are expecting interest rates to remain unchanged.

Prior to the RBNZ rate statement, the country�s trade balance is due later at 10:45 pm GMT. The 858 million dollar surplus from May is expected to drop to 214 million in June.

Up and down trading for the Kiwi yesterday, as it lost during early in the Asian session, rallied in the European session, before ultimately closing slightly lower as it gave up its gains during the US session. The NZDUSD pair closed 10 pips lower on the day, closing at .6564.

Late yesterday, New Zealand�s trade balance report showed a surprise, as the deficit widened to $3.18 billion NZD in the 12 months ending June 30. This was up from May�s figure of $ 2.97 billion NZD. The large increase in the deficit was fueled by a surge in imports due to purchases made in the aircraft industry. Without this one-time investment, imports would have fallen by 20% from a year ago, indicating that the recession is indeed causing companies to cut back on investments.

Looking ahead, the Building Consents m/m report comes out later today at 10:45 am GMT. The report is expected to show that consents went down by 4.8% in the month of June. This is somewhat discouraging, as consents had gone up by 3.5% in May. Let’s see if the markets have priced this in already.

The big news coming up later this week is the Reserve Bank of New Zealand’s interest rate decision on Wednesday at 9:00 pm GMT. It is expected that the RBNZ will keep its current rate at 2.50%. Given the recent improvements and sentiment that the recession is easing, it is probably very likely that there will indeed be no rate cut. Never the less, I�ve been burned before by surprise rate cuts and any mentions of possible quantititave easing. Better to be safe and be wary of this upcoming event.

The Kiwi saw some fast and furious movements yesterday. Despite a sharp deterioration in New Zealand’s trade balance, the NZD rallied alongside the AUD. As the day drew to a close, the NZD returned its gains as risk aversion revisited the markets.

After its trade surplus of 907 million NZD shifted into a trade deficit of 417 million NZD, the Kiwi found itself on the heels of a strong rally by the AUD. The AUD drew strength from positive comments from RBA Governor Stevens. But as the US reported a disappointing consumer confidence reading, the NZD/USD slid back down.

New Zealand’s building consents for June, which saw a 9.5% drop, pushed the NZD even lower. The actual figure was almost twice as much as the forecast of a 4.8% decline. This reflects a massive deterioration from the previous month which saw a 3% uptick in building consents.

The NZD has a chance to get back on its feet today as the RBNZ releases its official rate statement at 9:00 pm GMT. No interest rate cut is expected but positive comments from RBNZ officials could buoy the NZD back above the 0.6600 mark. Prior to this, business confidence figures are due at 3:00 am GMT. No forecast was given but a large improvement over the previous reading of 5.5 should prop the Kiwi up. But considering the latest slew of weak economic data, business sentiment may not be so upbeat.

Risk aversion in the capitals markets continued to be the NZD�s ghost. Same with the other higher yielding currencies, the NZD got beaten by the USD and JPY in yesterday�s trading.

The NBNZ business confidence index recorded its highest mark since 2002 at 18.7 from the previous reading of 5.5. According to the National Bank of New Zealand, the jump in the index suggests that the �light at the end of the recession tunnel may be just around the corner.� The NZD got some support following the report.

Earlier today, the Reserve Bank of New Zealand left its target interest rate unchanged at 2.5% for a second month. Reserve Bank Governor Alan Bollard hinted of a possible rate cut in the future if the economy does not continue to ease. The NZD fell across the board following the statement. According to some economist, the NZD is stronger than �normal� and such is hampering New Zealand�s recovery, particularly the country’s exports.

No other economic events are scheduled in New Zealand today. The NZD may be affected, however, with the release of the unemployment claims in the US. The figure is expected to rise to 578,000 from 554,000. Such increase could spark another round of risk aversion which would be bearish for the NZD.

The NZD dropped like a bomb yesterday despite the Reserve Bank of New Zealand (RBNZ) keeping interest steady for the third consecutive time. The prime culprit? Lackluster dovish comments from RBNZ Governor Alan Bollard.

Governor Bollard mentioned in his announcement yesterday that the bank decided to keep interest rates at low levels for the time being as inflation is well in line with their target. He even went so far to say that the bank most probably will slash interest rates further if economic conditions do not ease.

Have traders priced in economic recovery way too early? It seems like the RBNZ thinks this is the case, given its rhetoric yesterday. Apparently, the RBNZ is really concerned about the recent strength of the NZD versus other major currencies since New Zealand�s export sector composes a huge chunk of its economy. If the NZD continues to surge in value, the relative price of the country�s exports become too expensive for importers, which, in turn, dampens overall global demand. This could prove to be a serious bane to the country�s recovery. The thing is, even if this is the case, risk appetite remains the driver of currency values in the market today… And given these issues, it just makes me wonder how long the NZD could sustain its current price levels.

The NZD ended the week on a solid rise, erasing losses made the previous two days and closing near its yearly high. The pair rose by over 100 pips in intraday trading, closing the week at .6621, its highest closing price in 10 months.

Not much coming out from New Zealand this week except for some labor data. At 10:45 pm GMT, the Labor Cost Index q/q report is expected. This report measures the change in how much companies pay their employees. It is also a indicator of inflation as any additional costs in labor are normally passed on to consumers to pay.

At 10:45 pm GMT Wednesday, the unemployment rate will be announced. The rate is expected to jump to 5.6%. If the releases reveals worse than expected figures, we could see some weakness for the Kiwi.

The Kiwi sang to the tune of Miley Cyrus’ [I]The Climb[/I] as it staged a slow but steady “uphill battle” yesterday. Fueled by risk appetite, the NZD/USD moved past the 0.6600 mark and is currently testing the 0.6700 level.

According to New Zealand’s Treasury, the nation’s economy is expected to bounce back to positive growth by the end of this year. This statement, which hints that the third quarter of 2009 may mark the end of New Zealand’s contractionary cycle, boosted confidence in the Kiwi.

Meanwhile, wage inflation was reported to have slowed down as rising unemployment reduced the pressure for companies to hike up wages to attract workers. Labor cost index rose by 0.3% quarter-on-quarter, missing expectations of a 0.5% increase.

ANZ commodity prices are on tap for today. This report is due at 3:00 am GMT. Commodity prices were up by 0.2% in the previous month and, given the recent commodity rallies, another uptick might be in the cards for June. No other economic reports are due from New Zealand today but the Kiwi could make another climb if risk appetite stays in the markets.

The sun shone over New Zealand as the Kiwi managed to inch further against the USD and JPY in yesterday�s action. The NZD/USD and NZD/JPY pairs were also able to close above the previous month�s high. Such extends the possibility of the Kiwi moving higher.

The ANZ commodity prices for the month of July rose by 1.0%. The index managed to advance by only 0.2% in June. The account measures the change in the global price of exported commodities. Commodities take up the majority of New Zealand�s exports. Hence, any increase in the index would translate to a gain in the total value of New Zealand�s exports (assuming that demand is inelastic for that period). The jump in the index, however, was not able to support the NZD. The NZD started falling during the second part of the Asia session up to the end of the Euro session probably because of some profit taking actions.

The NZD�s feat was jump started during the start of the US session as risk tolerant investors once again took the center stage. Confidence on higher yielding assets and currencies was further boosted with the surprise increase in the US pending home sales.

No economic reports are scheduled today in New Zealand. However, the NZD may get a lift given the expected improvements in the ADP non-farm employment change and ISM non-manufacturing PMI.

The NZD held a steady tone versus the USD yesterday as it traded within a very tight 50 pip range. Economic data that came out failed to create any significant impact on the NZD�s price action.

New Zealand�s June unemployment rate just released increased to 6% from last reporting period�s 5.6%. It seems that joblessness is still continuing to mount despite all the �green shoots� here and there. Economists are saying that the labor market would experience more losses in the coming months.

No economic data is set for release today so the NZD�s price action would be highly dependent on whether investors are in the mood for some risk taking or not.

Tight trading for the NZDUSD pair resumed yesterday, although the NZD did lose some gains from the previous day as the USD rallied slightly across the board. The pair closed trading at .6707.

Nothing coming out from New Zealand today, so be on the lookout for any news that could cause shifts in risk sentiment. I expect some fireworks during the US session, when employment data will be available. If the new boost risk appetite, we could see the NZD reach for new highs. Conversely, if it sparks a return of risk aversion, we could see the NZD have another day of losses.

No news is good news. This saying held true for the Kiwi, which was able to take advantage of the surge in risk tolerance and hold on to its gains last Friday. While most majors found themselves in a rally-then-reverse situation, the NZD/USD stood strong above the 0.6700 handle.

Job losses were reported to have moderated in the US and investors took this as a sign to buy up higher-yielding currencies, one of which was the Kiwi. The NZD/USD raced past the 0.6800 area but ended up retreating back down. It landed safely above the 0.6700 level, which is a few notches higher than where it was prior to the release of the NFP report.

Could the Kiwi adhere to the “no news is good news” adage yet again? No economic reports are due from New Zealand for the first two days of this week, which suggests that the NZD/USD could still rally on the heels of improving investor confidence. The only high-impact report from New Zealand is its retail sales data, which is due on Thursday 10:45 pm GMT. Wednesday would see the Business NZ manufacturing index and food price index at 10:30 pm GMT. These reports are expected to have minimal to no impact on the Kiwi.

Looks like there�s no stopping the NZD from rising against the JPY and the USD. It has been on a long term uptrend which started as early as March this year. With the positive developments in the world capitals markets, investors seem to favor the NZD due to its higher yields (2.5%).

It was quiet yesterday in New Zealand in terms of economic updates. The NZD, however, continued to maneuver its way around as it closed positively against the JPY and the USD. Note that both JPY and USD have very low interest rates, 0.10% and 0.25% respectively. The recent economic environment which shows improvements presents a carry trade strategy for investors.

The developments in the global markets would definitely benefit the NZD as long as there is a profitable spread between the former and the JPY and USD.

Risk aversion finally took its toll on the NZD yesterday as it fell right through 0.6700 against the USD in yesterday�s trading session. The absence of any economic data also provided little support for the NZD.

Some low impact July economic reports are due tonight. At 10:30 pm GMT, Business NZ is set to release its manufacturing index. The index assesses the manufacturing industry by using a 0-100 boom/bust scale. A reading above baseline 50 means that the manufacturing industry is expanding. Following at 10:45 pm GMT is the food price index. These reports tend to have minimal effect on the market so the NZD�s price action would most probably be at the mercy of risk tolerance once again.

Watch the reaction of traders to the FOMC announcement later to see where market sentiment stands!

For a moment yesterday, it seemed like the NZD was going to flow downstream for the 2nd day in a row. However, with a change of the current, the NZD found itself swimming upstream, as dollar weakness midway through the European session boosted higher yielding currencies. The Kiwi closed the day at .6730, after it had hit a low of .6600.

The Business NZ manufacturing index had a reading of 49.7 for the month of July, up from the previous month’s reading of 46.5 With 50 being the score that separates contraction from expansion, this indicates that the manufacturing sector has been improving as of late.

Late tonight, we may have some hard hitting news as retail sales data will be available at 10:45 pm GMT. Sales are actually expected to have fallen by 0.3% from May to June.

Surprise surprise! Retail sales in New Zealand surged by 0.1% in June while core retail sales posted a less-than-expected decline of 0.4%. The NZD took this as a go signal to race 30 pips past the 0.6800 mark.

Retail sales were expected to be down by 0.3% in June. Instead, the 0.1% increase marked the first uptick in total retail sales volume since 2007. Appliance sales were up by 9.9% while fuel sales rose by 2%. Clothing sales, on the other hand, slid down by 9.1%. Nonetheless, these optimistic figures boosted confidence in New Zealand’s economy, which is expected to climb out of the recession later this year.

No economic reports are due from New Zealand today. Economic data released from the US, namely CPI figures, could have significant effects on risk sentiment and thus influence the price action of the NZD/USD. In the meantime, the NZD is expected to hum a bullish tune for today.

Luck was not on the Kiwi�s side either as it slid past the USD and JPY in last Friday�s trading. The lack of positive catalyst plus the disappointing UoM survey result caused investors to safe guard their money under the watchful eyes of the USD and the JPY.

New Zealand�s retail sales jumped to an inflation-adjusted 0.4% in June, it�s first rise since 2007. The account was only expected to gain by 0.2%. According to some accompanying reports, the decline in the number of people losing jobs has kept confidence among consumers somewhat high, thus, causing them to spend a little more. Still, economists expect unemployment to rise, albeit at a slower pace, which would limit New Zealand�s recovery.

The NZD gained following the release but it was not able to sustain its early profits throughout the day.

No economic updates are due today in New Zealand. The NZD would mostly just trade in a range bound fashion today given the lack of economic flows.

The NZD gave up more ground to the USD yesterday. Risk aversion is reign supreme and it seems that the investors� appetite for risk is starting to wane. After making a new yearly high, is the NZD merely correcting itself from its recent rally versus the USD? Or is a new trend in the making?

Event risk for the NZD is low today as only the second quarter Producer Price Index (PPI) for input and output are due. The PPI probably dropped 0.7% for input and 0.6% in output. The PPI for input measures the change in price manufacturers pay for raw materials while the PPI for output records the change in price manufacturers ask for their goods. Both reports are due for release tonight at 10:45 pm GMT.

Great day for the Kiwi, as the NZD pared off almost all the losses it made the previous day against the dollar. The NZDUSD closed trading at .6748 as it appears that risk appetite was in play yesterday.

Early this morning, producer price index data was released. The reports showed that producer output prices fell by 0.7% in the 2nd quarter, while input prices remained steady. This was a change from the previous quarter, when both input and ouput prices fell dramatically.

Nothing due today from New Zealand. Tomorrow, the Visitor Arrivals m/m report is due at 10:45 pm GMT.

New Zealand’s economic schedule was virtually empty yesterday but the NZD/USD made a couple of strong moves… only to land right back where it started, right around the 0.6750 area.

Commodity currencies staged a strong rally yesterday as crude oil prices jumped by 4.7%. This came after a large drop in crude oil inventory was reported, reflecting higher demand which was probably a result of businesses’ and consumers’ increased willingness to spend. Risk tolerance allowed the NZD/USD to recover some of its losses after the IMF announced that the global recession has finally come to an end.

This upbeat sentiment could carry on for today, especially since only a few economic reports are due from both New Zealand and the US. Visitor arrivals in New Zealand will be reported at 10:45 pm GMT. Visitor arrivals were down by 3.8% in June.

The daily uptrend line (from the first week of March) remains intact for the NZD/USD and NZD/JPY pairs. Clearly, confidence and risk appetite have propelled the NZD from its lowest mark in at least three years to where it is now.

No economic reports were due in New Zealand yesterday. The NZD moved just moved within a tight range given its light economic calendar. It was able to move a little higher due to the unexpected jump in the Philadelphia Fed index in the US.

Meanwhile, data on visitor arrivals in July was just released earlier today. The account rose by 3.9% after falling 3.8% in the month prior. The positive environment definitely got tourists spend on leisure and travel again.

Also, data on the y/y credit card spending in July will be reported 3:00 am GMT. While the account fell by 2.1% in June, it will not be surprising to see an increase in the numbers in July. Consumers now have a higher propensity or tendency to spend give the brighter outlook in the economy.