New Zealand Dollar Advances on Dollar Weakness

Ibeth Rivero

On Friday the Federal Reserve Chairman, Jerome Powell announced a new inflation-targeting framework, which opened the doors for an inflation level over 2 percent and seeing low-interest rates for a longer period of time.

NZDLast week, the New Zealand dollar advanced for the second consecutive week against the greenback, gaining 3.10 percent and closing Friday's session at the 0.6742 level.

The currency has been benefitting from the weakness of the US dollar, which lost 0.94 percent against a bundle of its main competitors last week. The American currency, whose weakness has persisted since the beginning of the crisis, is about to register its fourth consecutive monthly decline, losing 1 percent so far this month, after falling 4.15 percent in July.

In terms of the economic calendar, markets did not receive a lot of important information about the state of the New Zealand Economy. On Sunday, Statistics New Zealand released the quarterly retail sales figure, which showed a 14.6 percent contraction in the second quarter, after contracting by 1.2 percent in the first quarter. Excluding auto sales, retail sales contracted by 13.7 percent on the second quarter, after advancing 0.1 percent in the first quarter.

On Tuesday, Statistics New Zealand released the trade balance figure, posting a trade surplus at $282 million NZD (month-to-month) in July, after having a trade surplus of $475 Million NZD in the previous month. In yearly terms, it posted a trade deficit of 0.12 billion New Zealand dollars, after posting a 1.13 billion NZD deficit in June. Imports went down by 18 percent, falling to 4.63 billion in July from 4.61 billion in the previous month. Exports dropped by 0.2 percent, falling to 4.912 billion NZD from 5.08 billion NZD in June.

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On Thursday, ANZ released its Consumer Confidence Index for August, which dropped to 100.2 after being at 104.3 in the previous month. Stats NZ released it is total filled jobs figure for July, which stood at -7.418 million, after being at  2.2 million in the previous month.

On Friday the Federal Reserve Chairman, Jerome Powell announced a new inflation-targeting framework, which opened the doors for an inflation level over 2 percent and seeing low-interest rates for a longer period of time. Before this announcement, the Federal Reserve policy implied that the bank would raise its cash rate levels if the inflation rate stood over the 2 percent target, but now the central bank is willing to tolerate a higher inflation level.

This obviously put further negative pressure on the US dollar, which was already being pushed down by the bank's ultra-loose monetary policy. The Federal Reserve's balance sheet has expanded by $3 trillion in the last months, a figure that is equivalent to the expansion of the balance sheet that followed the collapse of Lehman Brothers, which took years.

This week ANZ has released its Business Confidence Index for August, which stood at -41.8 in August, improving from July's figure which was at -42.4 and over the analysts' expectations, as they foresaw it to remain unchanged. August's Activity Outlook dropped to -17.5 percent from July's -17 percent, below the analysts' expectations who foresaw it to remain unchanged.

In its last meeting, the Reserve Bank of New Zealand surprised investors with its decision to expand its bond purchasing program to NZ$100 billion from NZ$60 billion, after leaving the interest rates unchanged at 0.25 percent. The bank left the door open for further interest rate cuts as well. The bank's governing board is set to meet again at the end of September.

Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

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