The New Zealand dollar officially clocked in a losing streak last week. Will this week’s catalysts extend the party for the bears? Here are events you should take note of.
Labour market numbers (May 1, 10:45 pm GMT)
New Zealand’s unemployment rate edged lower from 4.6% to 4.5% in Q4 2017, which marks the fourth consecutive decline AND the lowest rate since Q4 2008. A net of 8,000 jobs were also added during the quarter, though labour force participation rate ticked 0.1% lower to 70%.
The report, combined with a strong dairy auction at the time, allowed the Kiwi to maintain its gains by the start of the Asian session.
This week market players are expecting a 0.6% employment growth while the unemployment rate is expected to maintain its 4.5% reading.
Remember that the central bank recently added employment to its mandate. This means that weaker-than-expected results would add salt to the wound that RBNZ Governor Adrian Orr opened when he said that inflation is expected to be “benign” for some time, as it would push the RBNZ rate hike schedule to a much later date.
As you can see below, the Kiwi took cues from risk sentiment and dollar demand for most of last week. And since it’s NFP week, expect lots of ripples (no, not the cryptocurrency) that could push the comdoll in either direction.
Pay close attention to the FOMC statement, as it could make or break the dollar’s winning streak across the board. Australia’s top-tier events such as the RBA statement and trade data could also cause a blip or two (or a hundred) for the Kiwi.
Oh, and keep your eyes peeled for any geopolitical or trade updates from the major economies!
Last Week’s Price Review
The Kiwi is officially on a losing streak since it’s currently the biggest loser of the week (as of 7:00 am GMT), which is also a repeat of last week’s poor performance.
Like last week, the Kiwi’s weakness this week is very likely due to monetary policy divergence and interest rate differentials.
If you can still recall, RBNZ Guv’nah Adrian Orr was interviewed by Radio NZ last Thursday and he said that inflation in New Zealand will likely remain “benign” for some time, which implies that the RBNZ is comfortable with keeping the OCR steady for a little while longer.
U.S. bond yields, meanwhile, have been rising to reflect higher inflation expectations in the U.S., which raises the prospect that the Fed may have to hike at a faster pace than expected.
And that has been pushing the Greenback higher at the expense of the Kiwi. Also, higher U.S. bond yields mean that the high-yielding Kiwi’s own yield advantage is negated, further dampening demand for the Kiwi while building up demand for the Greenback.
Other than monetary policy divergence and interest rate differentials, risk sentiment also had an apparent effect on the Kiwi’s price action.
However, risk appetite began to fade during Monday’s U.S. session, so the Kiwi’s resilience began to falter.
Risk-taking got revived during Tuesday’s Asian session. But as you can see in the overlay of NZD pairs, the Kiwi got sold off across the board.
There were no direct catalysts, but as noted in Tuesday’s Asian session recap, some market analysts were pointing to broken technical levels.
The Kiwi then tried to claw its way back up when risk appetite persisted and the Greenback’s rally stalled during Tuesday’s London session.
Sadly for Kiwi bulls, the Greenback got a second wind and risk aversion made a comeback during Tuesday’s U.S. session, so the Kiwi was forced to resume its slide.
The Greenback’s strength persisted and risk aversion intensified on Wednesday, so the Kiwi found itself on the receiving end of a beatdown.
The Kiwi finally found some respite come Thursday when the Greenback’s rally began to lose steam and signs of risk-taking began to return.
However, the damage was already done and so the Kiwi is currently on course to closing out the week as the worst-performing currency of them all (again).
As a side note, New Zealand’s latest trade report revealed an $86 million deficit instead of a $270 million surplus. However, that didn’t really have a significant impact on the Kiwi’s price action.