Currencies | Jun 30 2009
By Chris Shaw
With the latest economic data releases out of New Zealand confirming that economy is struggling mightily of late, TD Securities global strategist Stephen Koukoulas suggests the outlook for the Kiwi dollar is increasingly precarious as it is becoming increasingly likely the Reserve Bank of New Zealand (RBNZ) will cut the official interest rate further in coming weeks.
Koukoulas notes both GDP and current account numbers were very disappointing, the former falling by 1% for the quarter in recording its fifth successive quarter of negative growth. At the same time the current account weakened further and now equates to around 8.5% of New Zealand’s GDP, a level at which he suggests it is likely causing some concern for ratings agencies.
As well, Koukoulas points out while the New Zealand dollar is regarded as a commodity currency the nation’s major commodity export is dairy and here prices haven’t enjoyed the same gains as the likes of base metals and energy prices in recent months. This is evidenced by the fact industry major Fonterra has been forced to cut payments to dairy farmers by as much as 50% in recent months.
Given such an economic outlook, Koukoulas sees a cut in official interest rates to 2.0% as likely, pointing out if the RBNZ makes such a move there is really no reason to hold the Kiwi dollar as it would weaken not only against the Australian and US dollars, but against the other crosses as well, with falls of 5-10% in coming weeks possible on his analysis.
