Global trade-related news took its toll on the Kiwi last week. Will this week’s set of catalysts provide the comdoll some reprieve?
ANZ business confidence (March 28, 12:00 am GMT)
New Zealand won’t be printing top-tier reports this week, but ANZ’s survey of 1,500 businesses ought to get some attention.
See, the report has been a legit leading indicator in the past, especially since it also talks about hiring and pricing trends among business owners.
And with the RBNZ citing “numerous uncertainties” as reason for its bias towards accommodative policies, you can bet that the central bank will be watching what major businesses have to say.
More global trade war uncertainty?
As you can see below, the Kiwi took heavy hits on news that the U.S. is planning on placing tariffs on a bunch of Chinese products, which prompted China to basically say “game on” to the U.S.
Trump has hinted that he’s willing to negotiate with global economic giants, but until we see some concrete news, traders will likely stay worried about export-dependent economies like New Zealand.
Last Week’s Price Review
The Kiwi looks set to have a repeat performance since it’s currently the third worst-performing currency of the week (as of 7:00 am GMT), just like last week.
The Kiwi actually started the trading week on a strong footing (except against EUR and GBP), even though risk aversion was the prevailing sentiment on Monday.
There’s no clear reason why, but short covering to preserve some profits ahead of the RBNZ statement is a possibility, given that the Kiwi already took a beating last week. However, it’s also likely that the Kiwi was feeding off the Greenback’s weakness at the time.
At any rate, the Kiwi’s price action still didn’t make a lot of sense come Tuesday since the Kiwi weakened across the board, even though risk appetite got revived.
The Greenback was in rally mode at the time, though, supposedly because of preemptive positioning ahead of the FOMC statement. And it’s possible that Greenback strength was weighing down on the Kiwi. It’s also possible that interest rate differentials were in play since the RBNZ was expected to stand pat while the Fed was expected to announce a rate hike.
Another possible reason is that demand for the higher-yielding Kiwi was dampened because of some risk aversion in the background, given that there were still lingering fears related to a potential trade war between the U.S. and China, which was only reinforced late on Monday when the Washington Post released a report that cited four unnamed “senior administration officials” as saying that Trump plans to slap tariffs on some Chinese imports.
Whatever really triggered the Kiwi’s weakness, it’s likely that the latest dairy auction helped to push the Kiwi lower since that resulted in the GDT price index sliding by 1.2%, which marks the third consecutive decline in dairy prices.
Moving on, the Kiwi extended its losses during the first half of Wednesday. This time, the Kiwi’s price action made more sense since risk aversion prevailed ahead of the FOMC statement.
Risk sentiment did recovery later, though, which is likely why the Kiwi also recovery. Although it’s also likely that the Kiwi was once again feeding off the Greenback’s weakness in the runup to and in the wake of the FOMC statement.
The RBNZ announced its monetary policy statement shortly after the FOMC statement. However, that had little direct impact on the Kiwi’s price action, very likely because there were no surprises from the RBNZ. One thing worth noting, though, is that the RBNZ refrained from mentioning the Kiwi’s trade-weighted index (TWI), which can be seen as a sign that the RBNZ is not too worried with the exchange rate.
And that may have allowed the Kiwi to soldier on (on most pairs at least), even though risk sentiment turned sour once more come Thursday, thanks to renewed fears of a potential trade war between the U.S. and China. Although it’s also possible that the Kiwi was still sponging off the Greenback’s weakness.
The intense risk off vibes ultimately took their toll on the Kiwi, tough, since the Kiwi began to noticeable sag by the time Thursday’s morning London session rolled around.
And as a coup de grâce, Trump announced his anti-China tariffs later, which pushed the Kiwi even lower against most of its peers.
Anyhow, the Kiwi’s broad-based slide on Tuesday and the first half of Wednesday, as well as Trump’s anti-China tariffs, are the reason why the Kiwi is on course for another losing week.