The New Zealand dollar saw a reversal in momentum this past week despite better than expected retail sales and growing risk appetite. After reaching as high as 0.5934 the “kiwi” steadily descended, ultimately falling below 0.5700. The island nation has continued to see growth slow as the current global downturn has dried up demand for its exports.
[B]
New Zealand Dollar Threatened By Declining Domestic Picture[/B]
[B]Fundamental Outlook For New Zealand Dollar: Bearish
[/B]
- New Zealand retail sales unexpectedly rose for the first time in five months by 0.2%, As record low interest rates help fuel demand
- NZ Manufacturing PMI rose to 40.7 from 38.9, but remained in contraction for an 11th month.
- First Quarter Consumer Prices slowed to 3.0% from 3.4%, which was the lowest since September 2007.
The New Zealand dollar saw a reversal in momentum this past week despite better than expected retail sales and growing risk appetite. After reaching as high as 0.5934 the “kiwi” steadily descended, ultimately falling below 0.5700. The island nation has continued to see growth slow as the current global downturn has dried up demand for its exports. The manufacturing sector decline for a 11th straight month which could lead companies to start shedding workers. The labor market has remained resilient adding workers over the past three quarters. Yet, if domestic growth falters in conjunction with exports then the country’s downturn could accelerate. The recent OECD report painted a dour picture as it forecasted that “a deep and protracted recession, involving a housing market correction and deleveraging of household and business balance sheets, is unlikely to be avoided”. The country’s high debt levels and credit rating risk make monetary policy tricky for the RBNZ, but markets are expecting another 25-50 bps cut at their June policy meeting.
Further deterioration in the domestic economy and a declining interest rate outlook could remain a weighing factor for the “kiwi”. The NZD/USD has fallen below the 20-Day SMA for the first time since March 11th supporting a bearish case. A test of support at 0.5572 the 38.2% Fibo level of the 0.4894-0.5983 rally appears likely, with a retrace back to the 100-Day SMA at 0.5459 a possibility over the next few weeks. Improving risk appetite had been a main driver of the New Zealand dollars recent rally, but we have started to see that correlation fade in the past week. However, if we continue to see the trend of improving earnings next week, when many of the largest multi-national companies are scheduled to report, it could raise the outlook for the global economy. In turn , this will improve the prospect for improving global demand which could offset some of the domestic growth concerns. The economic docket won’t present much ion the form of event risk but a decline in credit card spending would validate domestic growth concerns. -JR