New Zealand Dollar Forecast Bearish Amidst Downbeat RBNZ Outlook

http://www.dailyfx.com/forex/fundamental/forecast/weekly/nzd/2011/01/21/New_Zealand_Dollar_Forecast_Bearish_Amidst_Downbeat_RBNZ_Outlook.html

New Zealand Dollar Forecast Bearish Amidst Downbeat RBNZ Outlook

Fundamental Forecast for New Zealand Dollar: Bearish

• New Zealand Dollar falls as Prime Minster talks down interest rate prospects
• Elliott Wave analysis suggests New Zealand dollar could weaken after gains

The New Zealand Dollar was the worst-performing G10 currency through the past week of trade, falling on a noteworthy deterioration in interest rate expectations and generally lackluster economic data. The highly yield-sensitive currency fell as Prime Minster John Key talked down the possibility of higher Reserve Bank of New Zealand interest rate targets, pledging to reduce fiscal stimulus to abate inflationary pressures.

To that end, Q4 Consumer Price Index inflation numbers fell squarely in line with consensus forecasts and suggested the central bank need not worry about tightening monetary policy through the foreseeable future. Analysts unsurprisingly predict that the RBNZ will leave rates unchanged at the coming week’s meeting, leaving relatively little scope for a relief rally in the recently-beleaguered New Zealand currency.

The RBNZ rate announcement is the only noteworthy piece of economic event risk in the week ahead, and the Kiwi currency is otherwise likely to track moves in soft commodities and broader financial market risk sentiment. Consensus forecasts unanimously call for unchanged interest rates, and tame inflation and growth measures suggest that the Reserve Bank is in little rush to normalize policy. The post-decision statement will likely reflect a neutral policy bias. Barring any surprises, the event is unlikely to offer any real support to the NZDUSD. Indeed, our overall fundamental bias remains bearish for the currency amidst a downbeat outlook for domestic growth and interest rate prospects. -DR

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