The New Zealand dollar is deemed to continue weakening opposite the US dollar today as bleak economic data and a downgrade of Spain’s credit rating are presumed to deter demand for commodity-linked currencies. Economic figures from the Asia Pacific region today underscore the fragile state of the global economy while the Spanish downgrade reflects the heightening risks being posed by the Euro Zone debt crisis.
In New Zealand, manufacturing activity contracted for the third consecutive month amid weak domestic orders and a rising Kiwi. The Business New Zealand Performance of Manufacturing Index remained in contraction in September at 48.2 points, up slightly from the August reading of 47.4 points, but still below the 50 level which separates expansion from contraction. In a worrying sign that production output could fall further in the months ahead, a gauge of new orders fell to its lowest level since May 2009 as demand waned due to the global slowdown. The New Zealand dollar has gained around 5 percent this year, curbing returns from exports and prompting manufacturers to reduce production. Meanwhile, inflation seems to be contained in the nation as the Food Price Index dropped for the first time in five months with a considerable 0.9 percent fall in September. Grocery food prices fell 1.6 percent while overall fruit and vegetable prices dipped by 2.2 percent. Such figures are seen to further fortify views that the Reserve Bank of New Zealand will likely keep interest rates at current levels for a longer period amid subdued economic activity.
Elsewhere, outlook for the Japanese economy deteriorated after the Japanese government reported that Core Machinery Orders plunged by 3.3 percent in August in a grim sign that companies will restrain spending as global demand continues to slow. The fall exceeded estimates of a 2.4 percent decline and likely underscores the growing risk of an economic contraction in the world’s third largest economy. Over to New Zealand’s largest trading partner Australia, the Unemployment Rate climbed from 5.1 percent to 5.4 percent last month, the highest since March 2010. Although the economy generated more jobs than forecast and that the participation rate also edged up, the rise in the Jobless Rate suggests that weakness in the economy has begun flowing through to the labor market.
Another factor likely triggering risk-off trades today is the Standard & Poor’s downgrade of Spain’s debt rating by two notches late yesterday. The agency now rates debt issued by Spain from BBB+ to BBB-, its lowest investment-grade status, leaving it on the cusp of junk territory. The S&P said that a grinding recession, high unemployment and social unrest are limiting the government’s options for curbing the nation’s financial crisis. It also assigned a negative outlook to the rating, suggesting that it could be further downgraded if Spain’s economic conditions deteriorate further. Considering these gloomy indications for the global economy, a short position is advised for the NZD/USD today.
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