Fundamental Forecast for New Zealand Dollar: Bullish
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The New Zealand Dollar rebounded from last week’s declines and reached a monthly high of 0.8462 on Friday. The Kiwi was boosted by the fact that the Reserve Bank of New Zealand kept interest rates unchanged and showed little urgency in easing monetary policy. Despite of slow economic growth and low inflation, RBNZ Governor Wheeler believes that reconstruction from earthquakes and recovery in housing market will lead to a higher domestic demand and eliminating the need for further rate cuts.
In addition, New Zealand December Trade Balance unexpectedly came in surplus the first time in four months as the nation’s exports increased to the highest level since January 2012. The better-than-forecast figures added more positive signals to the outlook of New Zealand economy and pushed NZDUSD immediately higher. Returning to trade surplus will not only strengthen New Zealand’s economic growth but may also create more fiscal room for it to respond to future shocks.
Looking into next week, the top news that traders may look to is the international trade reports from the four largest New Zealand counterparties: China, Australia, US and Britain. First, China has become more and more important to New Zealand as in 2012 exports to China rose by 24 percent on a yearly basis—the most among all the trade partners. Also in 2012, China overtook the UK as the third-largest importer to New Zealand and is expected to beat the US in 2013. The January Chinese trade figure due on Friday will weigh a lot on the New Zealand economy and a higher-than-expected figure could push the New Zealand dollar to new highs. Economists’ consensus forecast of exports to China called for a huge rise of 23.5 percent following a gain of 6.0 percent in January.
Australia, the largest trade partner to New Zealand, will release its December trade balance on Tuesday. The United States and UK, with total export of NZ$ 1,795 million and NZ$1,022 million in 2012 respectively, will publish their trade balance data this week as well. Big surprises in these figures may also influence short-term moves of the New Zealand dollar.
New Zealand’s Fourth Quarter Unemployment Rate may also cause considerable volatility in the NZD. The jobless rate has risen over last four quarters but is expected to fall slightly to 7.1 percent in Q4. Forex traders may look to it to guide short-term moves in the New Zealand currency.