The New Zealand dollar lost as much as a full percentage point against its U.S. counterpart on the week due to bearish economic data. After remaining nearly unchanged through midweek, the kiwi quickly lost 56 basis points to an intraday low of US$0.6340 following a negative trade balance report. A subsequent retracement saw it recover some of its decline, with the NZDUSD currency pair trading at US$0.6358 by Fridays close. Speculation of further declines in the Kiwi Dollar abounds, with many traders looking for a rally in the AUDNZD pair in near to medium-term trading.
The coming week will be relatively light on economic data, but Tuesdays business confidence results should provide a clearer picture of growth expectations for the small island economy. The National Bank of New Zealand (not to be confused with the policy-setting RBNZ) will report the findings of its August survey of business optimism. Given that last months reading showed the fewest positive responses in four months, there are relatively few analysts who expect a material rebound in the measure. Indeed, there is virtually nothing to suggest that respondents would have a change of heart from one month to another. Momentum is clearly downward, and it is unclear when it shall reverse. Later that day, government officials will report on the change in Building Permit approvals. Given the volatility in the number, it is likely that we will see a rebound from Junes double-digit fall. Regardless, much like overall economic sentiment, downward momentum suggests that we can expect further declines in the future. To round out the week, government officials will report on the aggregate money supply in the NZ economy on the 30th. Though the release is unlikely to be market moving, it should effectively capture the effectiveness of recent RBNZ monetary policy tightening measures. Money supply grew at 10.3 percent in June, which only serves to exacerbate existing inflationary pressure on prices. New Zealand Dollar bulls hope for a pullback in its rapid expansion, as further gains may bring price instability in a progressively slowing economy.
The past week of bearish economic news seemingly sealed the Kiwi Dollars fate as it confirmed the end of the July-August rally. After testing Mays highs near 0.6450, the pair has since dropped 1.3% against its 2-month peak. Indeed, Wednesdays Trade Balance data only worsened the outlook on the overall economy and led its currency lower. Economists had expected that the past year of declines in the New Zealand dollar would continue to boost exports for the heavily trade-dependent country, but effectively higher prices for energy imports have since far outweighed gains in export industries. Julys exports unexpectedly bested Junes solid NZ$2.98 billion value at NZ$3.01, but imports ballooned to NZ$3.78 billion?just NZ$0.3 billion short of their all-time high. As a result, traders offered the NZDUSD down to support at 0.6350.
Things do not look good for the New Zealand Dollar, as initial hopes for improvement in the national current account deficit fade. There are subsequently many market players who feel that the small nation will be unable to sustain annual deficits at over 4% of GDP and will be remiss to bid the NZD higher in medium to long-term trading. Murmurs of a potential government debt downgrade from Sandamp;Ps top AAA sovereign rating continue to gain steam, and only time will tell if the Kiwi economy is able to reverse its current downward drift.
