Last week saw the New Zealand Dollar weaken against the pound to a high of 2.73, before a correction in early trading on Monday morning. We saw a number of data releases from both countries, with the NZIER reading at -64, from a previous level of -19, a 20-year low in business confidence.

This week sees some important data releases which will reveal the true strength of the New Zealand economy, which will in turn show its effects in the strength of the currency. Monday sees the quarterly and annual CPI inflation data, expected to show a reduction to 3.5% YoY inflation, and a negative reading of 0.3% for the quarter. Prolonged deflation would have an extremely negative effect on the New Zealand economy, and the nation would suffer similar problems to Japan during the 1990s.

Tuesday will see sales data released for the month of November. Although this data may be seen as historical by some, it will provide some insight into the rate at which sales are declining, and how deep the current recession will be. The annual inflation report for 2008 and business manufacturing sentiment survey will also be released later in the week, neither likely to provide support for the ailing New Zealand economy. If all of this data shows to be negative, a cut in the central bank rate of interest is almost certain in a few weeks time when the RBNZ review the base rate.

Kiwi traders should ensure that they stay in regular contact with their FCG account manager, to capitalise when the ideal time to secure your currency arrives.