Kiwi Dollar Stabilizes as Carry Trades Attempt Comeback

The US Fed?s attempt to ‘mitigate? damage to turbulent equity markets stemmed the nosedive in the Kiwi dollar, after the NZDUSD pair weathered the steepest decline since the October 1987 stock market crash.

[B][U]Headlines
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Immigration Growth Rate Slides to 17-month Low in July
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New Zealand’s annual immigration growth fell to a 17-month low in July, suggesting demand for houses and consumer goods may cool. The number of permanent migrant arrivals exceeded departures by 8,970 in the year ended July 31, the lowest since February last year, Statistics New Zealand said in a report released today in Wellington.
http://www.bloomberg.com/apps/news?pid=20601081&sid=awTzGSVzGLSU&refer=australia
Source: Bloomberg

[B]Kiwi Finance Companies Fall Prey to US Subprime Contagion
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More finance companies are in danger of failing as investors shy away from them, analysts warned last night. Nathans Finance yesterday became the latest casualty, and is teetering on the brink of collapse.


Source: The New Zealand Herald

[B]Performance of Service Index Drops For Second Straight Month in July[/B]
The fourth monthly Business NZ Performance of Service Index (PSI) stood at 55.2 for July. The result was lower than the previous month for a second consecutive time, although still displaying healthy expansion. Weather conditions tended to be the biggest factor regarding negative comments by respondents for July, with concerns also raised about the cost of money due to higher interest rates.
http://www.businessnz.org.nz/file/1268/July%20PSI%202007.doc
Source: Business NZ

[B][U]Market Activity[/U][/B]
[B]Currency Market - NZD:[/B]
The US Fed?s attempt to ‘mitigate? damage to turbulent equity markets stemmed the nosedive in the Kiwi dollar, after the NZDUSD pair weathered the steepest fall since the October 1987 stock market crash. Risk-aversion was side-stepped at the beginning of the trading week, as a modest rebound in carry trades attracted investors to the yield advantage of the New Zealand dollar, and the NZDUSD pair crossed past 0.7000 USD during the New York session. The Kiwi dollar faced downside event risk as NZD $2.5 billion worth of New Zealand?s global retail bonds matured today, but the currency remained resilient despite speculation that uridashi and eurokiwi bonds may not be rolled over or replaced by other NZD-denominated assets. The trade-weighted index of the Kiwi dollar rose to 67.15 from 65.35. However, the stabilization in the New Zealand dollar after the rapid nosedive may be short-lived since one-month implied volatility on currency options rose to 24 percent, suggesting the global appetite for carry trades is likely to remain diminished.
NZDUSD (Daily Chart )


Prepared by DailyFX Research Team
Source: Bloomberg

[B]Equity Market - NZSX-50 Index:[/B]
New Zealand?s bourse, first among global stock markets to open the new trading week, followed the lead set by global counterparts at the close of Friday?s session. The benchmark NZSX-50 index staged a recovery after six consecutive falls to close up 88.03 points to 3982.37 on turnover worth NZD $117 million. Bullish sentiment prevailed as bargain-hunters prowled for over-sold stocks and gains outnumbered losses 85 to 30 on 144 stocks traded.
NZSX-50 Index (Daily Chart)


Prepared by DailyFX Research Team
Source: Bloomberg

[B]Fixed-Income Market - 10-year Government Bond Yields:[/B]
Investor confidence in riskier asset classes remains shaky despite unprecedented attempts by central banks worldwide to boost liquidity amid prospects of a credit crunch. As yields on shorter-term government notes slid across the globe, yield on New Zealand?s benchmark 10-year debt rose 1 basis point to 1.575 percent, possibly buoyed by Monday?s upbeat stock market performance.
10-year Government Bond Yields (Daily Chart)


Prepared by DailyFX Research Team
Source: Bloomberg