It was mostly risk sentiment that moved the Kiwi around last week. Will this week’s set of catalysts extend its trends?
There won’t be any major economic report from New Zealand this week, but we will see a bunch of business surveys that could support the RBNZ’s latest decision to keep its policies steady.
The NZIER business confidence – a quarterly survey – will be published on April 9 at 10:00 pm GMT, while the business NZ manufacturing index will be out on April 12 at 10:30 pm GMT.
Overall risk sentiment
As we’ve seen in last week’s price action, the high-yielding Kiwi tends to take its cues from overall risk appetite. Specifically, threats of an ugly trade war between the U.S. and China could weigh on the comdoll, while positive trade speculations and/or overall risk-taking could send it higher.
This week we should watch how China and the U.S. respond to each others’ growing list of tariff plans. Word around the hood is that some market players aren’t really pricing them in until one of the parties actually implements a proposal. Make sure you stick around in case it happens this week!
Last Week’s Price Review
The Kiwi is on a roll! The Kiwi was the top-performing currency last week and it’s currently on course to closing out the trading week in second place after the Loonie (as of 7:00 am GMT).
Like the Aussie, the higher-yielding Kiwi’s price action was also apparently driven mainly by risk sentiment.
The Kiwi therefore had a rough time on Monday when risk aversion was the dominant sentiment due to news over the weekend that China imposed tariffs on U.S. goods as retaliation against Trump’s tariffs on imported aluminum and steel.
The Kiwi then got a major bullish boost on Tuesday when risk aversion began to fade and risk-taking showed signs of returning.
However, the latest dairy auction resulted in the GDT price index falling by 0.6%, which is likely why the Kiwi’s climb stalled for a while. Another likely reason is what risk aversion was creeping back in, thanks to Trump’s plans to slap tariffs on 1,300 Chinese goods.
And when Wednesday finally rolled around, risk aversion really flared up when China announced that they’ll reciprocate by slapping tariffs on 106 U.S. goods to tune of $50 billion.
Oddly enough, however, the Kiwi didn’t fall. In fact, the Kiwi even added to its gains.
There’s no clear reason for this wonky price action, but some market analysts said that the dip in the GDT price index was softer than expected. And that may have helped to keep the Kiwi supported. Other market analysts, meanwhile, were attributing the Kiwi’s resilience on the Greenback’s overall weakness.
In any case, the Kiwi’s price action began to make sense later on since risk sentiment began to improve as fears of a full-scale trade war began to fade after Trump tweeted that “We are not in a trade war with China” and the Chinese ambassador to the U.S. said that “Negotiation would still be our preference but it takes two to tango.”
Price action on the Kiwi became wonky again come Thursday, though, since risk-taking persisted but the Kiwi broadly dipped. One possible reason is that the Greenback was recovering at the time, and that may have weighed on the Kiwi.
Anyhow, the Kiwi did try to make its way higher during Thursday’s London session. However, selling pressure eventually won out when risk aversion began to reappear after Trump reignited trade war fears by ordering an additional $100 billion worth of tariffs against China.
As a side note, some market analysts think that the Kiwi outperformed the Aussie because investors supposedly think that a trade war between the U.S. and China would be less detrimental to New Zealand (and the Kiwi). After all, New Zealand’s main commodity exports, namely dairy products, are consumed domestically, unlike Australia’s iron ore exports.
And since New Zealand is less vulnerable compared to Australia, these market analysts recommended buying the Kiwi as a hedge.