New Zealand Dollar May Be Weighed By Dimming Recovery Prospects

The New Zealand dollar after reaching above 0.6100 for the first time since November 6, 2008 has started to come under pressure as concerns grow that a global economic recovery will be protracted.

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[B]New Zealand Dollar May Be Weighed By Dimming Recovery Prospects[/B]

[B]Fundamental Outlook For New Zealand Dollar: Neutral[/B]

The New Zealand dollar after reaching above 0.6100 for the first time since November 6, 2008 has started to come under pressure as concerns grow that a global economic recovery will be protracted. Additionally, the domestic picture for the country continues to deteriorate as it continues to feel the effects of the sharp downturn in global demand. The RBNZ has lowered their target rate to a record low of 2.5% in an attempt to stimulate domestic growth but it may be sometime before it begins to flow through to the economy. Indeed, retail sales in the first quarter fell by a record 2.9% which marked the sixth straight quarter of declines. There has been a clear shift in consumer spending patterns as they have begun to shy away from big ticket items as they become increasingly cautious as they realize the impact of the global downturn. Companies continue to shed workers as they continue to cut production which could impact domestic demand through the end of the year and may cause the central bank to lower rates again. Home prices falling for a 10th month confirms the need for cheaper credit in order to avoid the deterioration in the sector that was experienced in the U.K. and U.S…

The economic docket doesn’t present any major event risk for this upcoming week but will provide further insights into the domestic growth picture. Visitor arrivals and credit card spending provide measurements of current and future consumer consumption which could confirm expectations of continued weakness. Meanwhile, the performance of service index has improved the past two months and with the previous months increase in new orders from 47.4 to 51.2, we could see continued improvement. Producer prices will also cross the wires and expectations of flat input costs and a slight increase in factory gate prices may make it inconsequential. The main driver of price action this week could be global risk appetite. Despite, concerns of a prolonged recovery we are still seeing global cycle indicators like U.S. industrial production continue to improve. Therefore, we could see are-test of the 38.2% Fibo extension of 0.7924- 0.4894 at 0.6051. A break above there would leave the 10/14 high of 0.6350 as the next major resistance level. Additionally, the 200-Day SMA at 0.5839 is providing support. However, if pessimism grows and the NZD/USD should fall below the significant technical support level then we could see a retrace back to the 50-Day SMA at 0.5668. -JR