The New Zealand dollar struggled to sustain a trend last week. Let’s see if there are enough catalysts for a more consistent intraweek trend this week!
New Zealand’s quarterly inflation expectations
The only major data on the docket is Q2 2018’s inflation expectation reading scheduled on Wednesday at 2:00 am GMT.
Back in November Kiwi lost pips across the board when the report printed weaker than its previous release. Take note, however, that the Reserve Bank of New Zealand (RBNZ) has already downgraded its CPI forecasts, which could limit the investors’ reaction to the report.
The advanced reading for Q4 2017 was at 2.0%, lower than Q3’s 2.1% growth. Meanwhile, the RBNZ just published that it’s expecting 1.1% (down from 1.5%) annual growth for Q1 2018.
Overall risk sentiment
Much like the Aussie, Kiwi was also affected by the risk aversion that gripped the markets. Unless risk sentiment improves across the board, then we’ll likely see NZD extend its losses (if not choppiness) across the board.
Last Week’s Price Review
The Kiwi is mixed for the week (as of 8:00 am GMT). But that doesn’t mean that the Kiwi was a mere victim to opposing currency price action since price action across Kiwi pairs was actually somewhat uniform, as you can see in the overlay of NZD pairs below.
The Kiwi showed resilience on Monday since it won out against everything except the Greenback, the Swissy, and the yen, even though risk aversion was the dominant sentiment on Monday.
Tuesday was another good day for the Kiwi. In fact, the Kiwi was the best-performing currency on Tuesday, even though risk aversion was the dominant sentiment yet again.
And while the higher GDT price index (+5.9% vs. +4.9% previous) and New Zealand’s upbeat Q4 jobs report certainly helped to push the Kiwi higher, the overlay of NZD pairs clearly shows that the Kiwi began tilting to the upside much earlier.
There were no apparent catalysts for the Kiwi’s rise, however. Although preemptive buying ahead of New Zealand’s jobs report is a possibility since the Kiwi began to tank shortly after New Zealand’s jobs report was released, even though risk appetite finally returned to Asia and Europe, which hints at the possibility of profit-taking by Kiwi bulls.
Although it’s also possible that Kiwi bulls were taking profits off the table and/or opening preemptive bearish positions ahead of Wednesday’s RBNZ Statement.
Speaking of the RBNZ Statement, that top-tier event caused the Kiwi to slump hard across the board.
As for specifics, the RBNZ downgraded its December 2017 and March 2018 forecasts because the net impact of the new government’s policies “has been revised down in the near term.” Although the RBNZ expects economic growth to pick up after that since subsequent GDP growth forecasts were upgraded, as you can see below.
- 2017 December – downgraded to 0.7% (0.9% previous)
- 2018 March – downgraded to 0.8% (1.2% previous)
- 2018 June – 0.8% (unchanged)
- 2018 September – upgraded to 0.9% (0.8% previous)
- 2018 December – upgraded to 0.8% (0.7% previous
- 2019 March – upgraded to 1.0% (0.7% previous)
- 2019 June – upgrade to 0.9% (0.7% previous)
- 2019 September – upgraded to 0.8% (0.7% previous)
- 2019 December – upgraded to 0.8% (0.7% previous)
- 2020 March – upgraded to 0.8% (0.7% previous)
- 2020 June – upgraded to 0.8% (0.7% previous)
- 2020 September – upgraded to 0.7% (0.6% previous)
- 2020 December –upgraded to 0.7% (0.5% previous)
- 2021 March – 0.6% (new)
However, what really likely disappointed market players and caused the Kiwi to tank was the string of downgrades on the RBNZ’s annual CPI forecasts.
- 2018 March – downgraded to 1.1% (1.5% previous)
- 2018 June – downgraded to 1.6% (2.1% previous)
- 2018 September – downgraded to 1.6% (2.2% previous)
- 2018 December – downgraded to 1.8% (2.1% previous)
- 2019 March – downgraded to 1.7% (2.0% previous)
- 2019 June – downgraded to 1.8% (1.9% previous)
- 2019 September – downgraded to 1.8% (2.0% previous)
- 2019 December – downgraded to 1.8% (2.0% previous)
- 2020 March – downgraded to 1.8% (2.0% previous)
- 2020 June – downgraded to 1.9% (2.0% previous)
- 2020 September – upgraded to 2.0% (1.9% previous)
- 2020 December – 2.0% (unchanged)
- 2021 March – 2.0% (new)
It should be noted, however, that despite the downgrades, the RBNZ is still projecting a rate hike by the June 2019 quarter or Q2 2019, which is likely why the Kiwi tried to climb higher after the initial sell-off.
Unfortunately for the Kiwi, risk aversion returned in force, pushing the higher-yielding currency back down.
Anyhow, the Kiwi’s early rise and later fall are the reasons why the Kiwi is mixed for the week, even though price action on the Kiwi was roughly uniform.