[B][B]New Zealand Dollar May Forge New Highs with G-20 Help[/B][/B]
[B]Fundamental Outlook for New Zealand Dollar: [/B][B]Bullish[/B]
- New Zealand Trade Balance Deficit Widened in August to -725M, On Declining Exports
- Gross Domestic Product 2Q Unexpectedly Rose by 0.1%,Versus forecast of -0.2%
- Westpac Consumer Confidence Rose to 120.3, Highest Since March,2005
The New Zealand Dollar set another fresh yearly high of 0.7313 this past week, which was the highest level since 8/4/08. An unexpected return to growth for the economy was the catalyst along with prevailing risk appetite. The second quarter GDP reading rose 0.1% versus the median forecast of -0.2% on a pick-up in consumer spending and a rise in exports. Indeed, the improving global economy saw demand from abroad increase especially for dairy and logs some of the country’s main exports. However, the trade balance deficit shrunk in August as exports slowed by 23% the lowest level in two years, which could be a sign that demand is waning as once depleted inventories have been restored. The domestic outlook improved as consumer confidence rose to 120.3 from 106.0 in the third quarter which is the highest level since the first quarter of 2005. Nevertheless, the New Zealand economy is reliant on exports and if we start to see demand level off, then the diminishing growth outlook could start to weigh on the “kiwi”.
The recent G-20 summit saw global leaders to pledge to maintain stimulus efforts until obvious signs of growth emerge. There are still concerns that rising unemployment will keep consumer retrenched and put banks at risk for future credit defaults. The economic docket holds very little event risk with only building permits and business confidence readings on tap. They both will speak to the stat of the domestic economy. However, all eyes will be on the U.S. labor report which is expected to show the lowest job loss since August, 2008. A better than expected print could trigger about if risk appetite and support for the high yielding New Zealand Dollar. Conversely, a sharp rise in employment could sink the “kiwi” especially after its recent run and with technical indicators showing it at oversold levels. We saw weakness to end the week and it appears that a test of support at 0.7006-20-Day SMA is a possibility. However, the next level of resistance for the pair is not until 0.7765-7/15/08 high and a move back above the yearly high could see it targeted. - JR