Increased exports and lower imports narrowing the trade deficit, combined with decreased credit card spending in December, paled into significance as the RBNZ slashed interest rates by a higher than expected 1.5%, reducing the base rate to a record low level of 3.5%. This resulted in the Kiwi losing ground on its counterpart currencies and the outlook certainly remains bearish with RBNZ Governor Allan Bollard saying that he sees room for lowering rates further.

These drastic actions are an attempt to stop the continuing economic rot and reduce the severity of the recession yet the chances of any improved growth remains unlikely with the IMF anticipating global trade conditions to weaken further as the year progresses. With fundamentals continuing to reflect a deep and long recession, the rest of this week will follow the trend starting on Wednesday with the release of ANZ Commodity Price Index for the month of January.

This release will be followed closely as falling export prices will point to a decline in demand for New Zealand commodities. Thursday’s unemployment announcement is expected to show a rise in the jobless claims from 4.2% to 4.6%. Although there is plenty of negative data out this week to confirm that the New Zealand economy is in severe trouble, the Bank of England is set to reduce interest rates and it remains to be seen whether the rate cut will outweigh the poor data set for the Kiwi this week.