Is the New Zealand Dollar Bottoming? (page 2 of 2)

Is the New Zealand Dollar Bottoming?

The New Zealand dollar is the best performing currency in the foreign exchange market today. Against the US dollar, the kiwi is up 0.8 percent and against the Japanese Yen it is up 1.15 percent.

With retail sales and the Reserve Bank of New Zealand rate decision this week, the currency pair is in play. After the past 2 week's sharp losses, the faster than expected producer price growth in the second quarter came as a welcome surprise. It has also helped the currency outperform the Australian dollar, which was weighed down today by softer than expected home loans data.

Technically, the New Zealand dollar looks poised for more gains, as long as there isn't another massive wave of carry trade liquidation over the next few days.

British Pound Hit by Weak Producer Prices

The British pound sold off against both the Euro and US dollar after much weaker than expected producer prices in the month of August.

Input PPI dipped by 0.5 percent while output PPI increased by a tepid 0.1 percent on a monthly basis. As a key inflation indicator, the drop in producer prices will satisfy doves who believe that the Bank of England will remain on hold until the remainder of the year.

The UK housing market on the other hand is holding steady. House prices according to the DCLG increased to 12.4 percent year over year in July which helped to offset news that UK subprime specialist Victoria Mortgages is no longer funding new loans.

The trade balance and leading indicators are due for release tomorrow. The strength of the British pound in July suggests that both numbers could worsen.

Weak GDP Takes a Bite Out of the Japanese Yen

The Japanese Yen weakened against every major currency today with the exception of the Australian dollar. GDP growth in the second quarter was revised down to 1.2 per cent from a preliminary estimate of positive 0.5 per cent.

Although consumer spending rose 0.3 per cent, business investment fell 1.2 per cent. The sharp surprise is a major setback for the Bank of Japan, who has been looking for an opportunity to raise interest rates.

This is especially true since money supply and the Eco Watchers index both deteriorated as well. Weak GDP in the context of weakening global growth should keep the central bank on hold for the remainder of the year.