New Zealand Market Update - May

02/05/2012

Currency Overview

Sterling gained almost four cents (1.9%) last month, adding to the recovery in March resulting in a net loss of one cent (0.6%) for the first four months of the year. 

Central Bank Policy

Interest rates were held at 2.5% at the RBNZ policy meeting at the end of April. Governor Bollard noted inflation is ‘restrained and expected to stay near the middle of the Bank’s target range’ while also citing the strong local currency as a factor in the decision to hold rates at record lows. No hike in rates is anticipated this year with the latest statement from the RBNZ increasing the chances of a 0.25% cut by the end of the third quarter to around 44%.

Data releases

There was a surprise jump in business confidence with a net 13% of businesses expecting conditions to improve over the next six months although there has been a trend over the last three years of expectations proving more optimistic than reality. Activity in the manufacturing sector slipped back in March but held in expansion territory for the fourth consecutive month and is above average levels for the same Q1 period last year. Consumer prices rose 0.5% in Q1, more or less as had been expected bringing the annual rate of inflation down to 1.6% from 1.8% previously.

Technical Outlook
 

February’s indecision and failure to hit a fresh low has resulted in two consecutive months of sterling gains. Although still in the red for 2012, the pound has clawed back 12 cents from the low in February and is close to testing 1.9930/50 resistance ahead of the psychological 2.00 level. Beyond here, 2.1000/40 and 2.1130 come back into focus. Support now at 1.9565/1.9450, 1.9175 and 1.9000.

<<Back