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[B][B]New Zealand Dollar to Look Past Data, Trade on Risk Trends[/B][/B]
[B]Fundamental Forecast for New Zealand Dollar: [/B][B]Bearish[/B]
- New Zealand Inflation Outlook Bolsters Case for Interest Rate Cuts
- Trade Deficit Narrows as New Zealand Imports Tumble in July
The New Zealand Dollar is likely to fall in with broad trends in risk appetite once again this week as traders look past a nearly empty economic calendar. Indeed, the August editions of the NBNZ Business Confidence and ANZ Commodity Price Index reports are the only items on the docket. The former may extend gains after hitting a 10-month high in July, but improvements in the headline figure may be misleading: a higher reading would imply that optimists outnumbered pessimists by a wider margin among the survey respondents, but this is no tall order considering the New Zealand economy has been shrinking for six consecutive quarters and could prove to be flimsy evidence of a sustainable recovery in economic growth. Meanwhile, the latter reading is all but sure to reflect an already familiar dynamic: the New Zealand Dollar has added 4.5% to date this month, which will likely more than offset slightly lower global prices for the antipodean nation’s top commodity exports, putting yet more pressure on firms catering to overseas buyers.
While the domestic scheduled event risk is decidedly tame, the US calendar that so often serves to guide overall risk sentiment features an ample dose of market-moving releases. Most critically, the ISM survey is expected to show that manufacturing expanded for the first time since January 2008; the Fed is set to release minutes from their last policy meeting; and the all-important Non Farm Payrolls report is forecast to show the economy shed -225 jobs in August, the least in a year. If these prove to offer support to risky assets, the New Zealand Dollar will continue to advance, with a trade-weighted average of the currency’s value now 93.4% correlated with the MSCI World Stock Index.
That said, last week’s muted response to the better-than-expected US GDP revision for the second-quarter may be hinting that equities are finally feeling uneasy having reached the highest levels relative to earnings since late 2003. This make sense considering the kind of earnings and revenue growth that can be expected in a year that brings the first contraction in real global GDP since the Second World War. As has been aptly noted by DailyFX’s own John Kicklighter, “Eventually, genuine fundamentals and the sedate forecasts they project will have to be reconciled with the steady rise in investor sentiment; and at these levels it is increasingly clear which is growing overextended.” On balance, regardless of direction, traders are likely to continue to watch equity and commodity prices to set the Kiwi’s directional bias for the time being. - IS