The kiwi dollar spent most of the week stationary and range bound as the economic picture for the Pacific economy remains cloudy. Previously rising for the month of July, the spot price has stalled and started to hover just below the 0.6250 figure, offering slightly overextended suggestions.
With inflationary data now reaching record highs, topping off at 4 percent as of the latest report, speculation seems to be rising of a potential rate hike at the next meeting by the Reserve Bank of New Zealand. The meeting scheduled towards the end of the week, is preceded by key reports which may offer central bankers further suggestions of the condition of the economy. Starting the week off, the NBNZ business confidence survey is expected to rebound from the horrid negative 32 reading seen last month. Anticipated for the month of July, the consensus is expecting a slight rebound on optimistic retail sales as of late. Subsequently, the trade balance report, shortly after, is likely to confirm an uptick in exporting growth. Although the deficit figure reached a record level in the month of May, expectations are for the gap to narrow slightly on increased monthly global demand. Both reports, although potentially positive, are likely not to deter Governor Alan Bollard from straying from market expectations of a no rate change decision. Should the RBNZ raise rates another 25 basis points, the country would be offering the highest interest rate of all the industrialized countries and lend to possibly exacerbating the current rate of inflation. The latter provides enough impetus, at least at this point, for central bankers to opt for a stay at 7.25 percent with further scrutiny later in the year more than likely. Rounding the week out will be both building permits and money supply figures reports. Although an increase in building permits is likely to spur an indication of growth, any increases in money supply would be suggestive of further inflation. A good sign of growth and rate hike potential, given the current outlook, higher rates of inflation may be detrimental to the underlying currency at this point.
Taking a look back, there was very little to show for the Kiwi economy as traders were privy to only a handful of reports on the week. Suggesting price increases at the consumer level, New Zealand consumer prices rose incremental over consensus figures by 1.5 percent. Expected to climb by 1.2 percent, the second quarter figure blows right past the 0.6 percent witnessed in the first quarter. Although somewhat surprising, the results were mildly accepted as markets had already seen core rates spike to 4 percent on an annualized comparison. The boost in prices was also noted in the following food prices report. In the month of June prices of regional foodstuff were bolstered higher by 1 percent. The reading once again jumped past estimates that mildly predicted a 0.5 percent climb in the month. Both reports are likely to weigh significantly against the aforementioned central bank decision. Ultimately, the thin schedule of data had little to do with the weeks action as the market turned to simple greenback fundamentals versus the now risk averse environment.
