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New Zealand’s weak CPI and risk aversion did a number on Kiwi’s strength last week. Will the comdoll recover this week?

New Zealand’s trade balance report

Around late Monday U.S. trading and early Tuesday Asian session New Zealand will print its December trade data.

Market players are expecting the deficit to calm down from 1193M NZD to 125M NZD. A quick look at the historicals tells me that the report is just as likely to surprise to the upside as it is to the downside, so make sure y’all are glued to the tube during the release!

China’s manufacturing reports

On Wednesday at 1:00 PM GMT China is scheduled to print its official manufacturing and services PMIs, followed by a private reading (Caixin’s) the next day.

The manufacturing PMI is expected to inch lower from 51.6 to 51.5 in January, while Caixin’s reading is expected to maintain its 51.5 figure.

Last Week’s Price Review

The Kiwi is the second worst-performing currency of the week as of 8:00 am GMT. And just one glance at the overlay of NZD pairs below can tell you why.

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

The Kiwi was actually a net winner from Monday to Wednesday, very likely because of the prevalence of risk appetite at the time.

However, the Kiwi had an unfortunate reversal of fortune when New Zealand’s Q4 2017 CPI report was released since it revealed that headline inflation only increased by 0.1% quarter-on-quarter, missing expectations for a 0.4% rise (+0.5% previous). More importantly, it missed the RBNZ’s forecast that CPI would climb by 0.3% quarter-on-quarter.

Year-on-year CPI came in at +1.6%, which is the weakest reading in four quarters. And it also missed the RBNZ’s forecast that CPI will grow by 1.8% year-on-year.

Given the misses, the market very likely thought that the RBNZ is no longer on track to hiking by June 2019, which is likely why the bearish reaction to the disappointing CPI report was so strong.

That wasn’t the end of the Kiwi’s suffering, though, since the Kiwi got a final bearish kick during Thursday’s late London session, very likely because risk sentiment turned sour after the ECB statement.

However, risk sentiment recovered during the later U.S. session, so the Kiwi eventually found support and began trading sideways.