New Zealand Dollar Awaits Direction from US FOMC Meeting

The dips and rallies by the New Zealand dollar are being orchestrated by variations in global risk appetite, as investors turn to world equity markets for cues on the attractiveness of riskier asset classes.

Headlines
Second Quarter Unemployment Rate Expected to Drop to 3.8%
New Zealand?s quarterly unemployment rate, printing below 4 percent for the past three years, is expected to continue to suggest that tight labor market conditions prevail in the economy. Results of a Bloomberg survey indicated that New Zealand?s second quarter unemployment rate probably declined to 3.7 percent, down from the Q1 metric of 3.8 percent.
http://www.bloomberg.com/apps/news?pid=20601081&sid=aVRNixgsmVPQ&refer=australia
Source: Bloomberg
ANZ Commodity Price Index Rises By 4.7% in July
Buoyed by a surge in prices of dairy commodities, the ANZ commodity price index rose for the thirteenth consecutive month in July, although the 4.7 percent increase was a moderate rise in comparison to June?s metric of 6.2 percent. The price index for New Zealand?s seventeen main commodity exports increased by 35 percent compared to the prior year.
http://www.stuff.co.nz/4156241a13.html
Source: Stuff.co.nz
US Subprime Woes Shave NZ $3 billion Off New Zealand?s Stock Market
Since July 27th, when the effects of the US subprime lending crisis began to reverberate overseas, New Zealand?s benchmark NZSX-50 index has plummeted 5.8 percent, eroding a value of about NZ $3 billion from the top 50 stocks traded. The susceptibility of equity markets to US credit scares is particularly acute in the case of ‘riskier economies? such as New Zealand, as the stock exchange has not been able to recover from the downtrend despite signs of pickup by the US DJIA and S&P 500.


Source: The New Zealand Herald
Market Activity
Currency Market - NZD:
The dips and rallies by the New Zealand dollar are being orchestrated by variations in global risk appetite, as investors turn to world equity markets for cues on the attractiveness of riskier asset classes. Bolstered by a rebound in the US DJIA and S&P 500, the NZDUSD crossed the 0.7600 key psychological level to open at 0.7651 USD in Wellington, above Monday?s close of 0.7599 USD. The Kiwi-yen cross also recouped some losses, as the recovery by global stocks sparked a minor resumption in carry trades. The upward move by the Kiwi dollar was possibly triggered by fundamentals suggestive of continued inflationary pressure - the ANZ commodity price index printed an increase for the thirteenth consecutive month in July. The 4.7 percent monthly surge in the index added credence to analyst expectations that the Reserve Bank of New Zealand may maintain the OCR at a record 8.25 percent at least till July 2008. The trade weighted index gained Tuesday to 73.04 from Monday?s close of 72.64.
Although technical analysis forecasts a possible NZDUSD breakout to the downside, the future direction of the Kiwi cross is likely to hinge on the tone of the commentary from today?s US FOMC meeting.
[I]NZDUSD (Daily Chart)


Prepared by DailyFX Research Team
Source: Bloomberg[/I]
Equity Market - NZSX-50 Index:
Buoyed by a recovery in US equity markets on Monday, the benchmark NZSX-50 index staged a 1.5 percent rebound, a welcome recovery after Monday?s trading session turned out to be the seventh consecutive down-day for Kiwi stock markets. At the close of Tuesday?s trading session in Wellington, the NZSX-50 index closed up 61.05 points, or 1.5 percent, at 4136.24, on trade volume worth NZ $137 million. Gains outnumbered losses by 69 to 37 among the 151 stocks traded.
Analyst forecasts suggest that the recent turmoil in global equity markets may calm down if the commentary from the US FOMC meeting reassures wary investors of US economic strength despite the fallout from the subprime lending crisis. Since July 27th, when the effects of the US subprime lending crisis began to reverberate overseas, New Zealand?s benchmark NZSX-50 index has plummeted 5.8 percent, eroding a value of about NZ $3 billion from the top 50 stocks traded. Additionally, New Zealand?s bourse is likely to take direction from the release of the earnings report for Fletcher Building, New Zealand?s largest building firm.
[I]NZSX-50 Index (Daily Chart)


Prepared by DailyFX Research Team
Source: Bloomberg
[/I]
Fixed-Income Market - 10-year Government Bond Yields:
Although yesterday?s stock market retracement boosted market sentiment to cautious optimism, conservative government debt remains a popular choice among investors wary of the ructions from the US subprime lending crisis. Yields on New Zealand?s benchmark 10-year note rose by 14 basis points to 6.517 percent.
[I]10-year Government Bond Yields (Daily Chart)


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