Concerns over the aftermath of the US credit scare show no signs of respite, hence the New Zealand dollar continues to lack favor among increasingly risk averse investors.
Headlines
Profitability of Sheep and Beef Farmers Likely To Bottom To 50-year Low
A report by Meat and Wool New Zealand forecasted that the average before-tax farm profit for a sheep or beef farmer next year will slide by 49 percent to about NZ $23,000 - the lowest inflation-adjusted level in 50 years.
Source: The New Zealand Herald
Foreign Minister?s Comments Exacerbate Kiwi Selloff
Prominent members of New Zealand?s government continue to bandy comments about the next move in the Kiwi currency market. The NZDUSD pair plunged below 0.7700 USD after Foreign Minister Winston Peters suggested the faltering New Zealand dollar may decline by another 27 percent. In contrast, National Party leader John Keys commented that the currency is supported by high interest rates and weakness in the US dollar, and that he foresees no such dramatic slide in the Kiwi.
http://www.stuff.co.nz/4147957a13.html
Source: Stuff.co.nz
Business Confidence Borders on Nervous Optimism?
Although NBNZ?s monthly survey indicated little deterioration in business outlook in July, confidence is tethering on the brink of nervous optimism?. The July reading of -38.5 represents a negligible decline from the prior metric of -37.2, possibly because windfall gains for the agriculture sector offset decline in profit expectations for the manufacturing sector.
http://www.stuff.co.nz/4147977a13.html
Source: Stuff.co.nz
Market Activity
Currency Market - NZD:
Concerns over the aftermath of the US credit scare show no signs of respite, hence the New Zealand dollar continues to lack favor among increasingly risk averse investors. During the Wellington session, the Kiwi retraced to 0.7731 USD, but declined to 0.7687 USD, possibly taking lead from Foreign Minister Winston Peters? forecast that the massively over-inflated? currency may decline another 27 percent. In contrast, National Party leader John Keys commented that the currency is supported by high interest rates and weakness in the US dollar, and that he foresees no such dramatic slide in the Kiwi.
One-month implied volatility on options on the Kiwi hit a one-year high of 16 percent, adding fueling speculation that the New Zealand dollar will give up most of the 31 percent gains made against the greenback during the year-to-date.
NZDUSD (Daily Chart)
Prepared By: DailyFX Research Team
Source: Bloomberg
[B]Equity Market - NZSX-50 Index:
[/B]Risk aversion prevailed in global equity markets as investment in riskier asset classes was stifled by evidence that the aftershocks of the US subprime crisis reverberated across the global. The benchmark NZSX-50 index closed down 54.911 points, or 1.303 percent to 4158.389. Falls significantly outnumbered gains by 95 to 21. Regardless of the downward spiral in world stock markets, the outlook for New Zealand?s bourse remained optimistic under the belief that trader behavior was led by caution, and not panic-induced selling. As the earnings season gets under way, the NZSX-50 index is expected to derive direction from domestic corporate profitability reports.
NZSX-50 Index (Daily Chart)
Prepared By: DailyFX Research Team
Source: Bloomberg
10-year Government Bond Yields:
Demand for New Zealand?s government debt took the lead from the theme of risk aversion that hiked demand for more conservative fixed-income assets. Yields on benchmark 10-year government notes dropped 3 basis points to 6.61 percent.
[I]10-year Government Bond Yields (Daily Chart)
Prepared By: DailyFX Research Team
Source: Bloomberg[/I]