The New Zealand dollar made a respectable attempt last week to recapture seven-month highs made against the US currency, but a lack of data and easing inflation pressures made the ascent a struggle. Looking ahead to the coming weeks economic activity, the calendar will fill out a bit.
First up for the markets consideration will be the New Zealand Institute of Economic Researchs Business Opinion Survey covering the third quarter. From the previous quarterly survey, the slight improvement in the headline number did little to improve the picture of dominate pessimism. As firms continue to see inflation above RBNZ Governor Bollards 3 percent charge and growth sliding to ever slower levels, executives at New Zealand firms are likely to feel the crimp in profit margins and respond in kind. Of particularly interest in the multi-questioned survey this time around will be those components related to employment and capacity utilization. Strong employment trends have formed in the island nation as most firms have recounted that it is increasingly difficult to find skilled labor. Should this change as businesses look to recoup losses from high lending rates, then consumer spending could come under fire. When the governmental survey passes, another more current business report will hit the market. On Thursday, ANZ will release its proprietary, Performance of Manufacturing Index report for the month of September. Factories leaders were confronting mixed factors last month, leaving the markets prediction vague. Improvements in consumer confidence and a huge drop in energy prices will likely show through in production as input costs and demand oil the supply chain from both ends. On the other hand, the threat of lending rates stabilizing at record highs and weaker exports due to the strong kiwi run will likely weigh heavy on the factory base. The final set of releases on Friday is the core and headline retail sales data for August. Loose expectations among analysts see another mild increase for the period on the back of a spike in fuel prices and another round of expensive autos. However, the health of retail sales is questionable as the growth over the previous three months data, and potentially August, are expected to come from price hikes rather than physical volume increases. If this dichotomy proves true, the central bank could come face to face yet again with the familiar problem of slowing growth and rising prices that has long plagued monetary policy makers.
Compared to the coming days, last weeks calendar was nearly empty. The only viable economic indicator hitting most traders radars was the commodity export price index compiled by ANZ. According to the report, the basket of goods was 0.8 percent more expensive in September than the month before. The additional figure represented the third consecutive month the indicator has risen, the first such occurrence since the three months through March of last year. On a longer time frame, prices had actually risen for the first time in a year when the annual report figure advanced 1.2 percent. From the various component categories in the overall gauge, improvements were isolated in the heavily-weighted agricultural group. Though all sub-group prices had fallen domestically, increases in the World Price Indices for meat, skins and wool and dairy were actually the force behind the positive read.
While the importance of the commodity basket was obvious to the export-dependant country, the report produced little effect in the kiwis pairing with the US dollar. Instead, inflation and rate differentials were playing upon the attractiveness of the New Zealand currency. From the beginning of the week, concern from those traders long the carry was high as energy prices hovered around $60 per barrel. Falling nearly 25 percent from its July highs, crude oil has taken considerable pressure off net importers of the volatile raw material. While the extent of the overall effect of softer energy prices on inflation will not be officially known until the third quarter CPI report due on the 24th, speculation will already be in place. This is one of the key concerns that has capped the most recent run in the kiwi this week below 0.6660. By the weeks end, NZDUSD finished 60 points from the open, but 75 points from the high at 0.6585.
