The New Zealand dollar was the best performing currency amongst the majors this week, advancing more than four-percent against the greenback following the less-than-expected rise in the unemployment rate however, the fundamental event risks scheduled for the following week could weigh on the exchange rate as the economic calendar is expected to reinforce a weakening outlook for the $128B economy.
[B]New Zealand Dollar Advance Could Buckle as Domestic Demands Falter[/B]
[B]Fundamental Outlook For New Zealand Dollar: Neutral[/B]
- New Zealand 1Q Unemployment Rate Rises to 5.0% from 4.7%, Participation Rate Falters
- Private Wages Excluding Over-Time Fall More Than Forecasts
- ANZ Commodity Price Index Rises For Second Month in April
- Market Optimism Could Falter as Fundamentals Catch Up
The New Zealand dollar was the best performing currency amongst the majors this week, advancing more than four-percent against the greenback following the less-than-expected rise in the unemployment rate however, the fundamental event risks scheduled for the following week could weigh on the exchange rate as the economic calendar is expected to reinforce a weakening outlook for the $128B economy. The jobless rate increased to 5.0% from 4.7% in the fourth quarter amid expectations for a rise to 5.3%, and the enhanced reading spurred hopes for an improved outlook for growth, but the release should be interpreted with a grain of salt as labor conditions continue to deteriorate.
Private wages excluding overtime increase 0.5% in the first quarter, which missed the 0.6% forecast held by economists, while demands for employment slipped 1.1% from the previous quarter, exceeding projections for a 1.0% drop in the first quarter. Moreover, the participation rate plunged to 68.4% from 69.2% during the same period as discouraged workers left the labor force, and the data foreshadows a dour outlook for the retail sales report due out next week as households continue to face a weakening labor market. As result, a larger-than-expected drop in private-consumption is likely to weigh on the exchange rate as household spending accounts for more than half of the economy, and the release could foreshadow a deepening downturn in the region as business continue to scale back on production and employment in an effort to weather the worst economic downturn in over three decades.
Meanwhile, the surge in market sentiment pushed the NZD/USD above the 200-Day SMA for the first time since May 2008, and the pair looks to be forming an inverse head-and-shoulders pattern, with the neckline sitting at 0.6000. The formation suggests that the exchange rate may have reached a bottom in March, and supports a bullish outlook for the kiwi but nevertheless, as the Reserve Bank of New Zealand maintains a dovish policy stance, expectations for lower borrowing costs could drag on the high-yielding currency over the near-term. A Bloomberg News survey already shows that 8 of the 12 economists polled forecast the central bank to ease policy further in June, and expect the board to cut the overnight lending rate by another 25bp to a record-low of 2.00%. As a result, we may see the kiwi-dollar pare the advance over the following week, and may fall back towards the lower-end of its broad range later this month to test for short-term support. - DS