[B]Fundamental Outlook For New Zealand Dollar: [/B][B]Bearish[/B]
- RBNZ cuts benchmark rate by 50 bps to a record low of 2.50%
- NBNZ Business Confidence in April rose to -14.5 from -39.3
- New Zealand Trade Balance Surplus Shrunk to 324.0M, but higher than the 250.0M forecasted.
The New Zealand dollar saw choppy price action as a RBNZ rate cut would offset gains from increasing optimism for the global economy. The central bank cut rates by 50 bps to a record low of 2.50%, where Governor Allan Bollard said he expected it to stay until the end of next year, but it “could still move modestly lower.” He said the world economy deteriorated further than expected in the first quarter of 2009 and “adverse economic forces” are expected “to remain dominant” throughout the year. Bollard said it is likely to be some time before economic activity returns to robust and healthy levels. The NZD/USD would drop over 150 pips following the announcement as market participants were expecting that policy makers would signal an end to the current easing cycle and with Governor Bollard leaving the door open for additional rate cuts it could continue to weigh on the New Zealand dollar. Previously, the “Kiwi” had been receiving support as improving fundamentals globally raised optimism and helped fuel demand for the high yielding currency. However, the MSCI world equity index rose 11.5 percent last month, the biggest gain in its 20-year history and the “Kiwi” is virtually unchanged over the same period. This could be a sign that there exists more downside risks for the economy and its currency.
The major event risk on the economic docket will be the quarterly employment report which is forecasted to show a 1.0% decline in jobs which is expected to push the unemployment rate to 5.3%. The percentage of unemployed would be at its highest level since September, 2002 which will dim the prospects for domestic growth. The recent dearth in global demand has crippled the New Zealand economy and pushed it into its worst recession in three decades. The central banks easing may be too late to avoid the downturn from deepening and the country’s economy may be dependent of the global economy to rebound before it see growth return. On that front, recent improvement in manufacturing activity in the U.S., U.K. and China may give “kiwi” bulls some hope. The 20-Day SMA has provided formidable resistance for the NZD/USD and another failed attempt to end the week could be a sign of weakness to follow. However, a break above the technical level could lead to a teat of the 200-Dau SMA at 0.5907 which is a level tha the other comm.-dollar pairs have recently tested.- JR