Solid economy powers on
Oct 1, 2007 12:28 PM
In another blow for the RBNZ, Friday's GDP data showed strong growth of 0.7% over the June quarter, bringing annual growth to 3.2%. The GDP figure for the March quarter was also revised upwards from 1.0% to 1.2%.
The results impressed the market, stimulating the NZD/USD to gain 40 points and adding an instant 50 points to the NZD/AUD. The NZD/USD continued to track higher over the rest of the session.
The NZD/AUD reversed all of the day's gains in overnight trade and will open the week around 0.8550.
Although the GDP data covers the period before the credit crisis hit markets, the GDP result was higher than the RBNZ would have liked. A number of hefty factors continue to drive the NZ economy, including a tight labour market and booming commodity prices and, with the government expected to ramp up fiscal policy next year in the lead up to the election, the upside risk to inflation remains significant.
Soaring Euro
The EUR/USD hit a new high on Friday of 1.4270 following a report showing easing inflation in the US. The inflation data encouraged the outlook for US interest rates to head lower, reinforcing recent USD weakness.
The EUR/USD, which has recoded all time highs in each of the past seven trading days, has also been supported by EUR strength and encouraged by signs of rising inflation in Europe.
The ECB is still expected to keep its target cash rate at 4.00% when it meets on Thursday, as it assesses the full ramifications of the credit crunch. Economic sentiment fell sharply in September, suggesting slower economic expansion to come and allowing the ECB time for market volatility to settle.
Week ahead
Along with the ECB, the BoE also meets on Thursday and is widely expected to hold its cash rate at 5.75%.
Even though it's a public holiday in Australia on Monday, the RBA meets on Tuesday to decide its target cash rate. While no change is expected, the week will see the release of some August data which could underpin the positive story coming out of Australia.
At home, it is a quiet data week, with only the employment confidence survey and commodity price survey data being released. We can expect external factors to continue to drive the NZD. |
