The New Zealand dollar lost ground against the greenback this week, but the 2009 rally continues to be well supported by the 20-Day moving average, and the high-yielding currency may push higher over the near-term as market participants raise their appetite for higher risk/reward investments.
[B]New Zealand Dollar Appreciation To Weigh on Economic Outlook [/B]
[B]Fundamental Outlook For New Zealand Dollar: [/B][B]Bearish[/B]
- New Zealand Manufacturing Falters in First Quarter
- New Zealand Dollar Appreciation to Limit Export Demand
- Risk Appetite Wanes on Growth Concerns, Financial Risks
The New Zealand dollar lost ground against the greenback this week, but the 2009 rally continues to be well supported by the 20-Day moving average, and the high-yielding currency may push higher over the near-term as market participants raise their appetite for higher risk/reward investments. Speculation for an upturn in global growth paired with long-term expectations for higher interest rate has helped to drive demands for the kiwi however, as Reserve Bank of New Zealand Governor Alan Bollard expects the economic recovery ‘to be slow and drawn out,’ fears of a protracted recession could weigh on the exchange rate in the second-half of the year.
During a speech earlier this week, the central bank head said that he expects the $128B economy to expand towards the end of the year, but warned that the recovery ‘could also be erratic’ as households face a weakening labor market paired with falling wages. Moreover, Mr. Bollard went onto say that the jump in the exchange rate could lead to a ‘fragile’ recovery, and the largest appreciation since 1985 may continue to weigh on the outlook for future growth as trade conditions deteriorate. As the central bank attempts to talk down the rise in the high-yielding currency, the New Zealand dollar may continue to lose ground over the near-term as investors weigh the outlook for future policy. At the same time, Credit Suisse overnight index swaps show market participants anticipate the RBNZ to tighten policy over the next 12 months as housing and financial conditions improve, and speculation for higher borrowing costs may continue to lead the NZD/USD higher as the Governor Bollard puts a floor on the benchmark interest rate.
Nevertheless, the economic docket is expected to show a 0.7% drop in 1Q GDP to mark the fifth consecutive quarterly contraction, and a dismal growth reading could reinforce a weakening outlook for the economy as the region faces its worst recession in over a quarter century. Meanwhile the current account deficit is anticipated to narrow to NZD -1.310B from NZD -4.108B in the fourth quarter, and signs of slowing downturn in the global economy may encourage an enhanced outlook for future growth as foreign demands improve. - DS