The New Zealand dollar is deemed to continue its decline opposite the US dollar today as continued uncertainty over the Spanish debt situation and a dovish outlook for Australia are apt to weaken its appeal. Spanish Prime Minister Mariano Rajoy quelled speculations that debt-strapped Spain could apply for a bailout soon by saying that a request for aid was not imminent while the Reserve Bank of Australia unexpectedly slashed interest rates, citing the gloomier global economy background.
Spain is the current focus of investor attention as Rajoy struggles to combat one of the Euro region’s largest public deficits while the country sinks deeper into recession. After unveiling further austerity measures for its 2013 budget last week, many analysts say that a formal request for a bailout is in the offing, with Reuters even reporting that the nation was ready as early as next weekend. A request for aid is widely viewed as positive for the financial markets as it would trigger Spanish bond-buying by the European Central Bank, which would essentially lower borrowing costs. Rajoy made the comments after meeting with the 17 leaders of Spain’s regions in Madrid. Although he said that he reached an agreement on fiscal consolidation with the regions, he gave no details on how they planned to balance their accounts. Meanwhile, ratings agency Moody’s revealed that it would publish a review on the country’s debt, which is just one notch above junk status, sometime this month. Amid renewed uncertainty, the markets are seen to pare back risk appetites, weakening the Kiwi in turn.
Likely another dampener for the Kiwi is the bleaker outlook for Australia, New Zealand’s largest trading partner. Yesterday, the RBA cut rates from 3.5 percent to 3.25 percent, its lowest level since 2009. The slower outlook for the global economy has caused declines in commodity prices, which in turn have buttressed the Australian economy in recent years. As such, the central bank even estimated that the peak in resource investment will likely take place next year at a lower level than earlier expected. The high Aussie was also a major factor, with the central bank noting that the high currency has dented the bottom line of exporters. Underscoring such outlook is today’s Trade Balance report from Australia which revealed that the nation’s trade deficit enlarged from 1.53 Billion to 2.03 Billion in August, likewise auguring poorly for the Kiwi economy. Considering these, a short position is recommended for the NZD/USD today.
For more news, analysis, technical charts and candlestick analysis, visit AlgosysFx Forex Trading Solutions