NZD delicately poised near 2009 highs
The local economy and global expectations are now providing opposing forces on the NZ dollar; the downward pressure from local forces is likely to persist until the RBNZ policy announcement 30-Apr; the direction of offshore pressures is uncertain. The most likely outcome is a lower NZD/AUD.
Take the local forces first. The NZIER survey showed the NZ economy as still entrenched in recession. Likewise Paymark electronic sales figures showed household spending slipping a notch in March. The result will be another RBNZ cash rate cut on 30-Apr, irrespective of whether the annual inflation rate is revealed to be 3% Friday or not (see Westpac preview). Economists’ cash rate predictions are centred on -0.5% while the market is still pricing closer to -0.25%; the debate in the lead-up would typically push the NZD lower.
The two key international currency trends at present are less clear. The EUR/USD appears to be in broad sideways pattern, with the next move likely to be the EUR weakening into the 7-May ECB decision; this would provide some downward pressure on the NZD/USD. But the upward trend in risky assets remains intact: the US share market rallied for the fifth consecutive week; ‘risky’ currencies have appreciated quickly with the NZD, KRW and ZAR to the fore (each up 16% in 5 weeks vs. USD). It is how this last trend unfolds that will probably dictate where the NZD goes in the next few weeks.
Unfortunately the trend is uncertain: we can point to momentum last week, significantly the AUD/EUR moving above its range of recent months; but any signs of global recovery are tentative and negative shocks could occur at any stage to derail the rally.
Stepping back, the general opinion appears to be that global recovery will not come quickly (see OECD forecasts), and that there will be challenges addressing the spin-off and also unwinding the massive monetary and fiscal stimili (see recent talk of New Zealander Graeme Wheeler, Managing Director Operations at the World Bank).
The impression gained is one of many false dawns to come for economies and asset markets alike. The current global ‘risk’ rally is likely to be such a false dawn. But that need not prevent a sharp short-covering AUD-led rally near-term.
In sum, the NZD is near or above 2009 highs for many cross-rates. The mixed global forces make the near-term direction unclear; sharp movements either way are possible. The imminent RBNZ rate cut is likely to show as a weaker NZD/AUD.
