Does New Zealand Data Suggest Further Strength for NZD/USD?

Last updated 3/27/2009 4:57 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

The New Zealand GDP printed at -0.9% for the fourth quarter of last year as the country suffered its worst contraction in more than two decades. However, despite the falloff in output the number was actually better than the market forecast of -1.2% decline. Additionally the country’s February trade balance rebounded strongly registering a surplus of 489M versus expectations of 77M and a the prior months’ negative -101M reading. Although the improvement in trade was primarily due to a sharp drop off in imports indicating that domestic demand was weak, the numbers nevertheless should prove supportive to the kiwi propping up New Zealand’s balance sheet.

Despite the seemingly gloomy headline data, today’s numbers suggest that the New Zealand economy continues to outperform suffering a much shallower contraction in GDP that any of its G10 counterparts. New Zealand’s exposure to China may also prove fruitful as the year progresses. If Chinese stimulus plan results in a pickup of demand for the country’s commodity based export sector, the New Zealand’s growth could turn positive once again before the year end. The IMF recently noted that “New Zealand is in a better position than most advanced countries to face the global storm, given its sound macroeconomic policies”. The IMF staff expects the New Zealand economy to contract by about 2% in 2009, with a gradual recovery over the medium term.

As one of only two G10 currencies carrying an interest rate higher than 3%, the kiwi provides an interesting opportunity for yield hungry investors. Up to now the currency market had feared that RBNZ would continue to slash rate further. Indeed many analysts expect rates to bottom out at 2.5% before the year end. However, should global demand pick up even slightly the notoriously hawkish Governor of RBNZ Allan Bollard is likely to keep rate steady in order to contain price pressures. While the rest of the G10 universe appears to mired in a protracted recession with rate hovering near zero probably well into 2010, the kiwi could remain the lone high yielder in the group. The unit has already had a substantial rally off its February lows of 4900 and will now likely correct a bit as it faces stiff resistance at the 6000 level, but any could be a long term buying opportunity as the kiwi represents one of the purest currency bets on the global recovery

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.