NZD/USD – Kiwi at a 10-Month Low due to an Apparent Recession and Rates' Drop

Friday, August 1, 2008

The New Zealand dollar reached its 10-month low on Thursday, due to growing concerns about an extended period of recession and a rapid fall of interest rates. I think this is due to the combination between the pessimistic comments made by Alan Bollard, the Governor of the Reserve Bank of Australia, as well as further negative data will contribute to the kiwi's weakness.

Next week's employment data and labor costs are expected to drag the New Zealand currency even lower. The monthly business outlook released by the National Bank of New Zealand reflects the companies' pessimism regarding the conditions of their trade for the fifth month in a row this July. This is the lowest consecutive negative reading in 20 years. According to senior economists, this is not only negative data, but it reflects the recessive state of the country.

New Zealand's Central Bank is expected to further cut interest rates in a meeting on September 11, by a quarter point to 7.75%, this is after they were already cut for the first time in five years last week. Analysts believe that if next week's wage and jobs figures point to a further easing the labor market, the market may start factoring in the risk of a 50 basis point cut.

As I have previously mentioned, The New Zealand currency dropped to $0.7316 its lowest reading since September on Wednesday due to a statement made by Alan Bollard about the various interest cuts ahead, due to the weakening of the economy and inflation pressures. It strengthened on Thursday and was set at $0.7356, yet analysts say that a further weakening of the economy may prove that this change is only short-lived.

The Kiwi stabilized at $0.7329 in comparison to Wednesday's $0.7345.

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