The New Zealand Dollar (the Kiwi)

[HenryTo]

After a major rally extending back to late 2001, the New Zealand Kiwi is finally weakening. Note that this is accompanied by a record current account deficit as well as a huge decline in business confidence. The export/import mix doesn't bode well for New Zealand in the 21st century as well, given that much of her exports are in agricultural commodities. Unless we have a huge bull market in soft commodities going forward, I don't see how the New Zealand dollar can sustain its current levels going forward.
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2005-10-21 21:58:02 GMT
Weekly Oulook: Will RBNZ Push Record Rate To 7.00%?

Kathy Lien strategist@dailyfx.com

The kiwi gained against the dollar early last week, stagnated and then continued its climb reaching a four week high, with an overall gain of nearly 60 pips. The climb was likely due to heavy speculation of a rate increase at the next meeting.

This coming week’s announcements start on Tuesday with the NBNZ business confidence survey. The survey posted a negative 37.5 percent last month on fears of slowing growth and heavy cost pressure which firms have been so far struggling to absorb rather than pass on to the consumer. Confidence has been consistently low and another round of negative confidence surveys may put the Central Bank in an even stronger position to again raise interest rates to help ease inflation, which is placing a major burden on businesses’ activity. However this may in turn slow economic growth in general. The bank has already raised rates by 1.75 percentage points since January 2004 and now holds the highest rate of any country with a top credit rating, but has continued to warn that further tightening may be necessary to curb inflation. This leads into Wednesday’s RBNZ official cash rate announcement which is expected to show a raise in rates to 7 percent, with inflationary worries outweighing fears of stagnating growth, consistent with many recent central bank decisions across the globe. Trade data will follow up on Friday with the country likely posting a widening deficit for September as inflation and a strong exchange rate continue to lower the cost of imports and a strong economy increases the volume demanded. Some take this as another indication that the Bank should raise their rates. Last month, New Zealand posted a deficit of 1104.8 million. Rounding out the week will be the announcement of the money supply growth which showed an annual increase of 7.4 percent last month.

Last week’s initial price action was found with price data. Consumer prices rose 1.1 percent in the third quarter, less than the expected 1.2 percent gain, but pushing the annual inflation rate to 3.4 percent, well above the target 1-3 percent target range. Bank Governor Bollard stated that increasing consumer borrowing against the value of their homes is causing part of the push on inflation - one more hint to the Reserve Bank that a rate hike may be necessary. Food prices, against expectations, showed a drop of 0.1 percent in September however to calm optimism. Midweek was the announcement of bond holdings by international investors, which followed the trend seen since June by rising to 72.2 percent as investors continued to cash in on the high rates and relative stability of the country. Finally, On Friday, data showed that short-term visitor arrivals rose by 2 percent in September. The country however gained 64 percent fewer permanent migrants in the same month, signaling a possible slowdown in home buying.

[HenryTo]

It seemed like only yesterday when we started talking about initiating a short position on the NZ dollar:
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TOKYO, June 28 (Reuters) - The New Zealand dollar hit a two-year low below $0.5993 on Wednesday, extending its losses after data showed worse-than-expected trade figures for May.

According to Reuters dealing data <NZD=D4>, the kiwi fell as low as $0.5964 as of 0616 GMT.

Data earlier showed New Zealand posted a trade deficit for the first time in three months in May, undermining expectations that the widening current account gap may soon start to level out.