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Monday 23 March 2009
Report: Kiwi dollar performs well despite domestic woe
The New Zealand economy has contracted at its fastest pace in 18 years as it was announced that the country’s recession has got worse in the fourth quarter. The economy contracted 0.4 percent in the third quarter, and 0.2 percent and 0.3 percent in the second and the first quarters of last year.
The RBNZ has cut interest rates to a historic low of 3%. Analysts are predicting that there will be another quarter percentage point cut taking place at the RBNZ’s next meeting on April 30. Fourth quarter GDP is anticipated to be 1.9 percent lower than a year ago.
However in the last week, the New Zealand dollar has rallied and posted the best weekly gains in 24 years. This comes on the back of news that the US Federal Reserve is planning to buy $300 billion of government debt which has resulted in the weakening of the US dollar as risk appetite is promoted and investors speculate that the greenback will be oversupplied. Also rallying equities have helped the NZ dollar's appeal and it's comparatively higher interest rate has seen investor demand remain firm.
New Zealand will be announcing key GDP data on March 27. The deepening recession in New Zealand has resulted in the country’s foreign exchange rating to be downgraded from stable to negative in January mainly in response to its expanding current account deficit. Investor's will watch carefully to see how this effects the New Zealand dollar's appeal.
GBPEUR: one month. Please click on graph to enlarge.
The RBNZ has cut interest rates to a historic low of 3%. Analysts are predicting that there will be another quarter percentage point cut taking place at the RBNZ’s next meeting on April 30. Fourth quarter GDP is anticipated to be 1.9 percent lower than a year ago.
However in the last week, the New Zealand dollar has rallied and posted the best weekly gains in 24 years. This comes on the back of news that the US Federal Reserve is planning to buy $300 billion of government debt which has resulted in the weakening of the US dollar as risk appetite is promoted and investors speculate that the greenback will be oversupplied. Also rallying equities have helped the NZ dollar's appeal and it's comparatively higher interest rate has seen investor demand remain firm.
New Zealand will be announcing key GDP data on March 27. The deepening recession in New Zealand has resulted in the country’s foreign exchange rating to be downgraded from stable to negative in January mainly in response to its expanding current account deficit. Investor's will watch carefully to see how this effects the New Zealand dollar's appeal.
GBPEUR: one month. Please click on graph to enlarge.
Pound close to 7 week low against the euro
In a quiet end to last week, the pound regained value against the single currency but stayed close to the seven week low of 95 pence per euro hit on Wednesday. Sterling came under pressure last week after a raft of soft economic data underlined the UK’s current economic plight, including rising unemployment and a CBI survey revealing that manufacturing orders fell at their fastest rate in 17 years. Investors will take a keen note of data releases in the UK this week, with inflation figures for February being released on Tuesday, followed by key retail sales numbers on Thursday and the final estimate of fourth quarter gross domestic product on Friday, alongside the current account balance.
Within the eurozone today construction output figures and trade balance figures are released this morning, with there being no major economic announcements due in the UK today.
Within the eurozone today construction output figures and trade balance figures are released this morning, with there being no major economic announcements due in the UK today.
Dollar suffers worst weekly loss for 24 years
The US dollar strengthened back over sterling by 0.45 on Friday to close at the 1.4459 level, but still suffered its worst weekly losses for 24 years against a basket of major currencies. News that the Federal Reserve will print more than $1 trillion, to purchase government and mortgage-backed debt in a bid to cut interest rates and kick-start lending, saw the dollar weaken the most since the 1985 Plaza Accord, when major economies agreed to a formal depreciation of the dollar. The dollar’s strength on Friday was driven by investors buying back into the greenback and taking their profits from earlier positions.
In today’s trading the pound has strengthened back over the US dollar, sitting comfortably over a cent up on the day, having reached a high of 1.4625. Improved risk appetite has seen investors’ demand for the pound increase and the dollar has been heavily sold as investors speculate that the Fed’s plans will see the greenback heavily over supplied. Later today Nationwide Housing Prices are announced in the UK, whilst in the US Existing Home Sales data is announced. There is also a speech from Treasury Secretary Geithner today and President Obama is expected to announce details of a three-part strategy to rid the US financial system of toxic assets.
In today’s trading the pound has strengthened back over the US dollar, sitting comfortably over a cent up on the day, having reached a high of 1.4625. Improved risk appetite has seen investors’ demand for the pound increase and the dollar has been heavily sold as investors speculate that the Fed’s plans will see the greenback heavily over supplied. Later today Nationwide Housing Prices are announced in the UK, whilst in the US Existing Home Sales data is announced. There is also a speech from Treasury Secretary Geithner today and President Obama is expected to announce details of a three-part strategy to rid the US financial system of toxic assets.
Dollar recovers a little ground against the euro
The dollar recovered some of its recent losses against the euro on Friday, but still fell heavily over the week, following the news of the Federal Reserve’s decision to buy $300bn of long-term government debt. Concern that the Fed’s plans could prove too costly and result in inflationary pressures prompted demand for the safe haven of the dollar on Friday, analysts said.
The euro’s strength was undermined by some grim data from the eurozone. A report from Eurostat showed a 3.5% monthly decline in the region’s industrial output in January. Concern over plans to prevent members of the eurozone from going bankrupt also undermined appetite for the euro.
This morning trade balance and construction output data is due from the eurozone at 10.00 GMT. In the US, existing home sales data will be announced at 14.00 GMT and the Treasury’s Geithner will be making a speech at 22.00 GMT.
The euro’s strength was undermined by some grim data from the eurozone. A report from Eurostat showed a 3.5% monthly decline in the region’s industrial output in January. Concern over plans to prevent members of the eurozone from going bankrupt also undermined appetite for the euro.
This morning trade balance and construction output data is due from the eurozone at 10.00 GMT. In the US, existing home sales data will be announced at 14.00 GMT and the Treasury’s Geithner will be making a speech at 22.00 GMT.
Kiwi's strength may be short-lived
The New Zealand dollar made further gains over the weekend, still being driven by the slump in the greenback and a rebound in stock markets stoking investor risk appetite. However, most in the market believe that the kiwi will be unable to sustain these recent gains as the prospect of further poor domestic data this week could drag it back down again. This week sees the release of fourth quarter current account and gross domestic product data. Most analysts are expecting further evidence of a continuing deep recession, which has investors bracing themselves for possibly worse than expected figures.
Aussie dollar makes small gains over the weekend
The Australian dollar made small gains against sterling over the weekend, as investors took a breather from recent gains in equity markets and an improvement in risk aversion. Last week markets were largely dominated by the Federal Reserve's decision to start quantitative easing. Investors will now turn their attention to a number of data releases due this week, which includes UK inflation and retail sales figures along with GDP and current account data. Sterling has remained under pressure in recent months after a continuous stream of poor economic results. The key question remains how much more negativity can the market build into the pound. Some in the market believe sterling is now undervalued.
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