RTTNews - Thursday during early deals, the New Zealand dollar plunged against its major counterparts after credit rating agency, Fitch downgraded New Zealand's long-term sovereign credit rating outlook to negative from stable, citing concerns regarding the medium-term growth outlook for the country.
The NZ dollar plummeted to an 8-day low against the aussie and a 2-day low against the euro.
The rating agency affirmed New Zealand's Long-term foreign currency Issuer Default Rating at 'AA+', Long-term local currency IDR at 'AAA', Short-term foreign currency rating at 'F1+' and the Country Ceiling at 'AAA'.
Despite the recession, the current account deficit remains large and is projected to remain above the level necessary to stabilize and reduce New Zealand's net foreign liabilities, Fitch said.
New Zealand could fall into a low-growth trap as foreigners demand higher returns to incentivise them to continue to lend to New Zealand so it can consume more than it produces, gradually eroding New Zealand's fundamental credit strengths, including strong public finances, and rendering it more vulnerable to future adverse shocks, said Ai Ling Ngiam, director of the agency's Asia-Pacific sovereign team.
New Zealand's consumer prices rose at the slowest pace in almost two years in the second quarter, Statistics New Zealand said earlier today. Amid the report, the NZ dollar showed little reaction against other major currencies.
The consumer price index climbed 1.9% year-on-year in the second quarter, slowing from a 3% increase in the first quarter. Economists expected a rise of 1.8%. This was the slowest rise in consumer prices since the September 2007 quarter, when prices were up 1.8%.
Sequentially, the consumer price index rose 0.6% in the second quarter, faster than the 0.3% rise in the first quarter.
The Reserve Bank of New Zealand Governor Alan Bollard said this week the nation may start recovering sooner than its major trading partners, prompting investors to increase bets he will raise interest rates. Bollard expects the economy to start growing in the fourth quarter.
Also, Bollard said the New Zealand dollar, which has surged 17 percent against the greenback in the past six months, needed to be weaker to bolster exports
The currency appears more responsive to global financial conditions than to domestic economic fundamentals, Fitch said today.
The New Zealand dollar fell to an 8-day low of 1.2511 against the Aussie during early deals on Thursday. If the kiwi slides further, it may likely target the 1.27 level. At yesterday's New York session close, the aussie-kiwi pair was quoted at 1.2383.
After hitting a 9-month low of 1.2950 against the aussie, the kiwi gained 5% and reached a 3-month high of 1.2353 yesterday. But the kiwi plunged today and thus far it has lost 1.3%.
In early trading on Thursday, the New Zealand dollar plunged to a 2-day low of 2.2037 against the euro. The next downside target level for the kiwi is seen at 2.233. The euro-kiwi pair closed yesterday's deals at 2.1743.
Extending last week's slide, the kiwi tumbled to a 5-week low of 2.2515 against the euro on July 13. But the kiwi rebounded on Tuesday as the euro plunged after reports showed that German investor confidence unexpectedly weakened in July and Euro-zone's industrial production rose less than expected in May.
The euro dropped 1% against the kiwi yesterday and tumbled to a 15-day low of 2.1649 as the Eurostat said that the Euro area annual inflation turned negative for the first time on record in June.
A final report from the statistical office showed that the consumer price index or CPI dropped 0.1% year-on-year in June after remaining flat in May. A year earlier, inflation was 4%. On a monthly basis, consumer prices rose 0.2% in June.
The New Zealand dollar slipped to 0.6391 against the U.S. currency during early deals on Thursday. The near term support level for the kiwi-greenback is seen at 0.627.
On the back of strong equities, the kiwi appreciated 2% against the greenback yesterday and hit a 15-day high of 0.6517 in afternoon New York session. However, the US currency bounced back after the release of the minutes of the FOMC's June meeting, which showed the Fed's GDP estimates were revised to show a smaller than expected decrease in 2009 and a bigger than expected increase in 2010.
The Fed said it now expects GDP to contract by 1.0 to 1.5 percent in 2009 compared to the previous estimate for a 1.3 to 2.0 percent decline.
Additionally, GDP in 2010 is now expected to increase by 2.1 to 3.3 percent, an upward revision from the previous estimate of 2.0 to 3.0 percent growth.
The kiwi-greenback pair closed yesterday's North American session at 0.6495
Retreating from yesterday's 2-week high of 61.52, the New Zealand dollar declined to 59.98 against the Japanese yen. On the downside, 57.0 is seen as the next target level for the kiwi-yen pair.
The yen advanced today as the Bank of Japan raised its economic assessment for the third month, citing an increase in public investment and pick-ups in exports and production.
In its latest monthly report of recent economic and financial developments, the central bank said Japan's economic conditions have stopped worsening, revising June's view that economic conditions, after deteriorating significantly, have begun to stop worsening.
Looking ahead, the Italian trade balance report for May is expected at 4:00 am ET.
From the U.S., the Labor Department is due to release its customary weekly jobless claims report for the week ended July 11th at 8:30 am ET.
At 9:00 am ET, the Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for June.
The results of the Philadelphia Federal Reserve's manufacturing survey are due out at 10 am ET. Economists expect the diffusion index of current activity to show a reading of -5 for July.
The National Association of Homebuilders' is scheduled to release the results of their survey on homebuilders' confidence at 1 pm ET.
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