Risk aversion finally broke the Kiwi’s winning streak last week. Will it regain its bullish momentum this week? Here are the potential catalysts.
New Zealand’s trade balance (April 26, 10:45 pm GMT)
The economy clocked in 217M NZD worth of trade surplus for the month of February, which is way better than the 100M NZD deficit that market players were expecting and the 42M NZD deficit seen last year. This, as well as a positive start for the week for risk sentiment, boosted the Kiwi higher during the release.
This time analysts are expecting a surplus of 200M NZD for the month of March. Take note that the report has been printing above market expectations for three consecutive months now. Will it shoot for the fourth this week?
As you can see below, high-yielding currencies like the Kiwi are subject to the ebbs and flows of risk sentiment.
This week pay close attention to the escalating trade tensions between China and the U.S. If you recall, U.S. authorities banned American companies from selling to major Chinese company ZTE for seven years.
If China decides to retaliate and hit American companies, then we could see the return of trade-related concerns (read: risk aversion for comdolls) in the markets.
Last Week’s Price Review
After being a net winner for three consecutive weeks, the Kiwi finally suffered a crushing defeat since it’s currently the biggest loser of the week (as of 7:00 am GMT).
The Kiwi encountered trouble right from the get-go, likely because of the prevalence of risk aversion on Monday, thanks to lingering geopolitical tensions after Trump ordered a massive missile strike on Syria over the weekend.
And this early weakness pushed most Kiwi pairs below last week’s closing prices (dashed horizontal line).
The Kiwi then got another lashing when Tuesday rolled around, even though risk appetite got revived. And the selling pressure apparently came after China’s industrial production data failed to impress, which is kinda weird since the Kiwi continued to slide while the Aussie eventually recovered and it’s the Aussie that usually gets the worst of it whenever Chinese data disappoint.
Anyhow, all Kiwi pairs eventually found support and most then traded mostly sideways after that, before selling pressure on the Kiwi ramped up again comes Thursday.
Risk aversion was the dominant sentiment on Thursday. However, the Aussie was also likely under pressure because of interest rate differentials since a string of mostly positive data reinforced expectations of further Fed rate hikes, which drove up demand for the Greenback at the expense of other currencies such as the Kiwi.
And as a final parting shot, newly-minted RBNZ Guv’nah Adrian Orr was interviewed by Radio NZ late on Thursday and the Guv’nah said that New Zealand will continue to experience “very benign inflation going forward without doubt,” which implies that the RBNZ is comfortable with keeping the OCR steady at current levels.
And that also plays up on interest rate differentials since the Fed is expected to continue hiking further. And as a result, the Kiwi-bashing only intensified.