THE TAKEWAY: Terms of Trade Index drops to September 2009 levels > Suggest economic weakness, further supported by poor PMI figures > Kiwi undecided after Fed’s statement
The New Zealand Terms of Trade Index registered -2.6 for the second quarter of 2012 which was the lowest level since September 2009. The index’s decline signals prices for New Zealand exports have been worth less than the prices paid for goods imported which may cause harm to the economy. Moreover, recent PMI figures would suggest confirmation that current conditions for the manufacturing industry have begun to contract.
On Friday the New Zealand Dollar initially found support during Bernanke’s remarks suggesting additional quantitative easing might be on the table if needed. However, the Kiwi appeared to have found strong resistance around the .8040 area and is now trading around .7987. Mixed interpretations over whether new stimulus will be introduced appears to have markets rather undecided. The Kiwi currency is a higher-yielding pair and is considered a higher-risk investment which subsequently implies that it tends to trade with general risk-linked trends.
NZD/USD, Daily Chart