Overall risk aversion helped drag Kiwi lower and end its winning streak last week. Will this week’s reports bring back the bulls to its yard?
Trade balance (Feb 26, 9:45 pm GMT)
Last month’s release was a non-starter for Kiwi bulls even though the economy switched from deficit to surplus for the first time in five months in December. Can’t really blame the bulls, though, since risk aversion was hitting markets hard at the time.
New Zealand clocked in its highest surplus for a December reading as both exports and imports hit new highs.
This time around analysts expect a return to deficit to the tune of 2.7B NZD against December’s 640M NZD surplus. Unless there’s a bigger catalyst moving the markets, look for upside or downside surprises that could move the New Zealand dollar in either direction.
ANZ business confidence (Feb 28, 12:00 am GMT)
The report might not have a track record of influencing Kiwi’s price action for long, but the lack of other catalysts on this day might bump the release up as intraday catalyst.
If you’re planning on trading the report, then you should know that this month’s release will be the first for the year after it clocked in at -37.8 (a reading below 0.0 means pessimism) in December.
Are business owners a bit more optimistic this year?
Overall risk appetite
As mentioned below, overall risk aversion did a number on Kiwi’s price action and dragged it lower despite positive economic reports.
Whether it’s risk-taking or profit-taking from previous uptrends, make sure you keep close tabs on Kiwi’s intraweek demand trends!
Last Week’s Price Review
The Kiwi edged out a win against the Loonie but is still the second worst-performing currency of the week (as of 8:00 am GMT). This is a reversal of fortune since the Kiwi was the second strongest currency last week. Moreover, the Kiwi’s poor performance this week will put an end to the Kiwi’s two-week winning streak.
The Kiwi’s price action looks kinda messy at first, but if we simply remove NZD/USD and GBP/NZD from the overlay, we can see that there was actually a certain uniformity to the Kiwi’s price action.
By the way, that dashed horizontal line above represents last week’s closing prices. And as you can see, the Kiwi is a net loser this week because of the Kiwi’s broad-based slide on Monday and Friday.
However, the Kiwi’s losses weren’t too severe (except on NZD/USD) because of the Kiwi’s broad-based rally on Tuesday and the first half of Wednesday.
Risk sentiment began to sour during Tuesday’s U.S. session, however. Also, the latest dairy auction resulted in the GDT price index falling by 0.5% (+5.9% previous). As a result, the Kiwi’s recovery began to show signs of fatigue on most pairs before finally becoming a mixed mess by the time Wednesday’s London session rolled around.
Kiwi pairs finally steadied, with some tilting to the upside, when risk appetite returned on Thursday. However, the encountered selling pressure later during Thursday’s U.S. session, very likely U.S. equity indices were coming off their highs at the time, which is a sign that risk aversion was making a comeback.
As a side note, New Zealand’s Q4 retail sales report surprised to the upside. However, that only served as a minor speed bump for the Kiwi bears. Moreover, risk appetite recovered in Asia and yet the Kiwi continued to fall.
There was no apparent reason for this, but as noted in Friday’s Asian session recap, some market analysts said the upbeat retail sales report likely won’t convince the RBNZ to hike earlier or budge from its cautious monetary policy stance. Other market analysts, meanwhile, blamed the Kiwi’s weakness on the Greenback’s broad-based strength.
Of course, it’s also possible that Kiwi bulls were just using the retail sales report to exit their longs after two weeks of broad-based Kiwi strength.