The New Zealand dollar got a one-two punch from weak data and risk aversion last week. What could move the comdoll this week?
RBNZ’s policy statement (March 21, 8:00 pm GMT)
Last month the Reserve Bank of New Zealand threw a curveball to Kiwi bulls when it surprisingly downgraded not only its growth forecasts, but also its inflation estimates.
Recall that Governor Spencer and his team cited the government’s growth policies, market volatility, and tradeable goods inflation as some of the reasons for their less-than-hawkish outlook.
This week market players expect the central bank to stay pat on its policies.
For one thing, Spencer will pass the baton to Adrian Orr on March 27, so the RBNZ won’t likely make big waves ahead of the transition. And then there’s the weaker trade balance and GDP reports that we’ve seen since the last announcement, which only supported the RBNZ’s estimates.
RBNZ’s new targets?
Traders will most likely watch out for the new RBNZ Policy Targets Agreement (PTA), which market bees buzz think will be announced this week.
For newbies out there, you should know that Finance Minister Grant Robertson and New Zealand’s new government is planning on adding “full employment” to the RBNZ’s mandate alongside price stability.
According to Robertson:
“I understand the limits of monetary policy, Robertson told me last week, “so we want [the Reserve Bank] to be considering maximising employment but, unlike a particular inflation target, we would not be seeking a particular employment target through monetary policy.”
“…What we want is the bank to play its appropriate role in maximising employment that will not include a specific employment target.”
Keep your eyes glued to the tube for any updates from the Finance Ministry!
Last Week’s Price Review
Like its fellow comdolls, the Kiwi also suffered from a reversal of fortune since it was a net winner last week but is likely to close out this week as a net loser. To be more specific, the Kiwi is presently the third biggest loser after the Loonie and the Aussie (as of 7:00 am GMT).
The Kiwi’s price action looks a bit messy, but it does get better if we simply remove AUD/NZD and NZD/CAD from the overlay.
The Kiwi started the week on a strong footing, likely because of the risk-on vibes at the time. However, the Kiwi began to encounter selling pressure ahead of RBNZ acting Guv’nah Grant Spencer’s speech, even though risk-taking continued.
There was no clear reason for this, but profit-taking after last week’s bullish run and ahead of Spencer’s speech is a possible run, especially with the RBNZ statement coming up next week.
Fortunately for Kiwi bulls, Spencer didn’t really talk about the future direction of monetary policy or the Kiwi during his speech. And so the Kiwi apparently took directional cues from risk sentiment again. And since risk-taking prevailed, the Kiwi also got bid higher.
And subsequent reports/events only served to dampen risk-taking, which very likely weighed on the higher-yielding Kiwi.
These reports/events include, a Politico report that claimed that Trump wants to slap tariffs on China, heightened political tensions between the U.K. and Russia after Theresa May ordered the expulsion of Russian diplomats, Kudlow ramping up the trade war rhetoric against China in a CNBC interview, etc.
Other than that, the Kiwi also got a rather noticeable bearish infusion when New Zealand’s Q4 GDP report failed to impress.