The New Zealand dollar, touted among this year?s strongest performing currencies prior to the July 26th interest rate hike, plummeted against most majors as a global bout of risk-aversion eroded investor appetite for cashing in on carry trades.
[B]Trade Deficit Widens as Exports Plunge to Five-Month Low[/B]
The release of data on the monthly trade balance highlighted the full impact of the 26 percent annual rise in trade-weighted index of the New Zealand dollar. The annual trade deficit widened in June to NZ $524 million, twice as worse as the Reuters forecast of NZ $269 million. Imports in June were worth NZ $3.28 billion, slightly below the estimate of NZ $3.3 billion, while exports plummeted to a five-month low of NZ $2.75 billion, significantly short of the forecasted NZ $3.01 billion.
[B]RBNZ Requests Overhaul in System of Taxation[/B]
New Zealand?s central bank, in its frantic quest to restrain inflationary pressure on the economy, drew attention to the need for a more neutral tax system?, but remained shy of advocating a tax on capital gains. In a petition submitted in response to the parliamentary probe into the monetary policy framework, the Reserve Bank emphasized the importance of a taxation system that provides an adequate reward for personal savings.
[I]Source: The New Zealand Herald
[/I]NZ Herald - Breaking news, latest news, business, sport and entertainment - NZ Herald
[B]Homeowners to Suffer from Impending Increase in Mortgage Rates[/B]
The latest quarter-point interest rate rise, designed to reign in the overheated housing sector, is expected to put a strain on homeowners since major banks are now gearing up to hike mortgage rates. To worsen the situation for home owners, the OCR increase may cause property prices to plateau or drop.
[B]Currency Market - NZD[/B]:
The New Zealand dollar, touted among this year?s strongest performing currencies prior to the July 26th interest rate hike, plummeted against most majors as a global bout of risk-aversion eroded investor appetite for carry trades.
For investors seeking to enjoy the free lunch represented by the Kiwi-yen carry trade thus far, the tab arrived sooner than expected, spurred by a worldwide slump in equities. A major unwind in carry trades was set in motion and the New Zealand dollar slid by 3.2 percent to a six-week low of 92.65 yen in the Tokyo session. The decline of the New Zealand dollar against its US counterpart gained momentum and the Kiwi slid 2 percent to 0.7800 USD, a considerable decline given the post-float high of 0.8110 USD on July 24.
The trade weighted index - a measure of the strength of the New Zealand dollar versus five major trading partners - tumbled to 74.72 from 76.24 yesterday, well on track to retrace the 22.6 percent gain recorded since July 24 last year.
[B]NZDUSD (Daily Chart)
[B]Equity Market - NZSX-50 Index:
[/B]New Zealand?s bourse mimicked the downtrend that prevailed over global equity markets after investors rattled by the US credit market fallout diverted attention from riskier asset classes. During Friday?s trading session in Wellington, the benchmark NZSX-50 Index plunged 2.1 percent or 91 points, the steepest decline in four-years. But the index later staged a modest recovery to close at a two-week low of 4246, down 1.8 percent or 79 points. After taking Friday?s decline into account, New Zealand?s equity market has recorded 4.8 percent gains for the year to date.
[B]NZSX-50 Index (Daily Chart)
[B]Fixed-Income Market - 10-year Government Bond Yields:[/B]
Mounting uncertainty about the effect of the US credit market fallout on global asset markets diverted global liquidity towards more conservative government debt. The yield on New Zealand’s benchmark 10-year government notes dropped 14 basis points to 6.68 percent.
[B]10-year Government Bond Yields (Daily Chart)