It has been another eventful day for the NZ dollar as traders found another reason to shed the commodity currency. This time around the NZ dollar is being mauled by bears due to a significant drop in business confidence in June. The ANZ Business Confidence Index dropped into negative territory for the first time since March 2011 which was the same month that the official cash rate in NZ was sent back to a record low 2.5%, after a brief journey towards 3.0% in 2010. The index dropped to -2.3 from 15.7, which is a steep deterioration of sentiment in a very short period of time, and shows that business aren’t comforted by the RBNZ’s recent decision to loosen monetary policy, at least not yet.
In June, the Reserve Bank of NZ (RBNZ) cut interest rates for the first time in four years, lobbing 25 basis points off the official cash rate, citing low inflationary pressures and an expected weakening in demand. At the same time, the bank opened the door for even looser monetary policy later this year. Since then a string of softer than expected economic numbers from NZ has firmly held this door open, including a very disappointing set of growth data:
Seasonal adjusted GDP grew a measly 0.2% last quarter, completely missing an expected 0.6% expansion, as primary industries activity fell 2.9%; lower dairy production and softening activity in the mining sector are to blame. Also, business investment expenditure was very soft.
NZDUSD
NZDUSD wasn’t a big victim of yesterday’s drive towards safe haven assets, largely because the kiwi’s yield advantage over other major currencies makes it an attractive place for money fleeing Europe. However, today’s sell-off has erased all of the gains the pair won in the American session overnight, as it tests an important support zone around 0.6800. From a technical perspective, NZDUSD is looking shaky in the long-term, although we cannot rule out the possibility that it has been oversold – it has fallen over 900 pips since late April. In light of this big move, we’re keeping an eye out for profit taking and other factors that may spark a short-term retracement.
Source: FOREX.com
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