[B]New Zealand Dollar Looking To Ride Rising Commodity Demand[/B]
Fundamental Outlook For New Zealand Dollar: Neutral
- New Zealand rating raised to stable from negative by S&P, after budget release show’s restraint
- Trade balance deficit narrowed to NZ$4.11B, the smallest since 2005
- NBNZ 2-Year inflation expectation fell to 2.2%
The New Zealand dollar rose above 0.6400 for the first time since October on an upgrade in its S&P rating, rising commodity prices and broader demand for high yielding assets. Finance Minister Bill English revealed the country’s new budget which showed increased borrowing, elimination of pending tax cuts, and reduced spending which led to the its credit rating outlook being upgraded to stable from negative. This helped the “kiwi’ reverse mid week losses and sent it on its current upswing to . Improving optimism has fueled demand for risky assets which has spark a rally in equities and commodities. Indeed, the Reuters/Jefferies CRB Index of 19 commodities extended its rally this month to 13 percent, which was the largest in 34 years. The carry trade has started to come into play reaching its highest level since September 2008, as risk appetite continues to gain ground which could continue to add support for the NZD/USD. Although, the RBNZ has lowered their target rate to a record low 2.50%, it still remains one of the highest yielders of the developed nations.
It remains to be seen if the current momentum is sustainable and we could se a significant pullback in demand for risky assets with several rate decision and the U.S. Non-farm payroll on tap. If this is the case then the ”kiwi’ could see a sharp retrace with support at 0.6120 the 5/28 low with the 20-Day SMA at 0.6035 to follow. There aren’t any major fundamental releases on the economic calendar but the ANZ commodity price index will give us some insight into export demand which is the main driver of growth for the economy. Higher prices will reflect an increase in demand and could signal that the recession is starting to bottom. Increasing signs that a broader economic recovery is under way will continue to add support for the New Zealand dollar. Now that the pair has cleared the 38.2% Fibo of the 0.8216 – 0.4894 decline the next major resistance level is the 10/7 high of 0.6426. We may not see ultimate resistance until 0.6554 the 50.0% Fibo extension.- JR