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Last week Kiwi took cues from risk appetite for direction. Will this week’s CPI report change all that for the bulls and bears?

New Zealand’s CPI (Jan 24, 9:45 PM)

In the last CPI report release NZD popped higher at the 0.5% growth as it’s way stronger than Q2 2017’s 0.0% reading and better than the expected 0.4% uptick.

However, the comdoll also gave up its gains in the same trading session when traders chose to focus on dollar strength and overall risk aversion.

This time around market players are expecting to consumer prices to level from 0.5% to a 0.4% growth in Q4 2017. Will food prices rise enough to boost overall prices again? More importantly, will reaction to the report dictate Kiwi’s price action for long?

Overall risk appetite

As mentioned in the review below, Kiwi mostly traded at the mercy of risk appetite.

If traders once again choose to focus on top-tier market themes, then y’all better keep your eyes peeled for events such as BOJ and ECB’s policy decisions and U.S. and U.K.’s GDP releases. Oh, and keep your eyes peeled for updates on the U.S. government shutdown, will you?

Last Week’s Price Review

The Kiwi is mixed for the week (as of 8:00 am GMT). However, the Kiwi wasn’t merely a victim to opposing currency price action since Kiwi pairs had roughly uniform price action for the most part, but diverged on Thursday. And it’s this divergence that’s the reason for the Kiwi’s mixed price action so far this week.

Overlay of NZD Pairs: 1-Hour Forex Chart
Overlay of NZD Pairs: 1-Hour Forex Chart

As usual, the higher-yielding Kiwi was driven mainly by risk sentiment so it started the new trading week on a strong footing when risk appetite dominated on Monday, but later gave back those gains (and then some) when risk aversion made a comeback on Tuesday.

The latest dairy auction was held on Tuesday and that ended with a 4.9% surge in the GDT price index. However, that didn’t really do anything to stop the Kiwi’s slide at the time.

Moving on, the Kiwi later found broad-based support and began to climb back up during Wednesday’s London session. And as noted in Wednesday’s London session recap, this was very likely due to signs of returning risk appetite.

Risk-taking prevailed on Thursday, so the Kiwi initially had a good run. However, the Kiwi’s price action became mixed when China’s Q4 GDP report was released, even though risk-taking continued to play out.

And as mentioned earlier, this divergence in Kiwi pairs is the reason why the Kiwi currently has a mixed performance for the week.

China’s GDP report was mixed but net positive overall. However, consumer spending and imports did print a slowdown. And those may have stoked speculation that demand for dairy products, New Zealand’s main commodity exports, will weaken further, dampening demand for the Kiwi in the process.

Going back to the Kiwi’s price action, risk-taking finally abated during Thursday’s U.S. session, and so the Kiwi began to tilt broadly to the downside and continued to do so.

Anyhow, aside from risk sentiment, it’s also highly probable that, like the Aussie, price action on the Kiwi may have also been partially driven by the Greenback’s effect on NZD/USD and NZD/USD then pushing or pulling other Kiwi pairs with it.

A likely evidence of this is during Wednesday’s U.S. session when risk appetite was still the dominant sentiment but most Kiwi pairs felt some bearish pressure as NZD/USD took a dive.