The New Zealand dollar was king of pips last week. Will the bulls find enough catalyst to feed their cause this week?
Here are potential catalysts:
Market’s risk sentiment
Since New Zealand isn’t scheduled to print any major economic report this week, all eyes will be on how the high-yielding comdoll reacts to overall risk sentiment in the markets.
Specifically, Kiwi traders will keep close tabs on updates regarding the U.S.-China trade negotiations. Word on the hood is that Trump administration will still slap $50 billion worth of tariffs on China’s products even though the latter will lower its tariffs on a range of U.S. goods by July 1.
Don’t forget that the U.S. also gave the go signal to increase tariffs on steel and aluminum products from Canada, Mexico, and the EU. Watch out for countermoves that could fan “trade war” rhetoric!
Last Week’s Price Review
As of 7:00 am GMT, the Kiwi is the king of pips (or queen if you like), which means that six consecutive weeks of Kiwi weakness will soon come to an end.
The Kiwi showed strength from the get-go, thanks to the risk-on vibes caused by news over the weekend that Italian President Sergio Mattarella rejected Paolo Savona, a known Eurosceptic, as economy minister of the would-be coalition government in Italy.
The Kiwi’s rally began to stall when Monday’s London session rolled around, however. And as noted in Monday’s London session recap, that was due to the new narrative that Italy may be headed for fresh elections after appointed PM Giuseppe Conte resigned in the wake of Mattarella’s refusal to endorse Paolo Savona as the economy minister.
Risk aversion intensified on Tuesday as election fears in Italy became even more widespread. Also, market analysts began saying that fresh elections in Italy would be akin to a proxy referendum for Italy’s membership in the E.U.
The Kiwi also got a bearish kick when the RBNZ’s Financial Stability Report was released since the report flat out stated that:
“Monetary policy is not expected to tighten in New Zealand for some time.”
The report also noted that:
“Debt levels in the household sector are high, particularly for new homeowners and for property investors. These borrowers are vulnerable to rising interest rates or a change in financial circumstances. If borrowers default on their loans, it could cause significant loan losses for the banking system.”
In other words, the RBNZ is heavily implying that it doesn’t want to hike rates because of high household debt.
Anyhow, the Kiwi kept sliding for a couple of hours after that before finally jumping higher about an hour before RBNZ Guv’nah Adrian Orr and Macro-Financial Department Head Bernard Hodgetts testified in Parliament.
There was no clear reason for the jump and risk aversion was the dominant at the time. However, it’s possible that some traders were just covering their shorts, just in case the RBNZ officials say something unexpected.
And as it turns out, Hodgetts did say something that’s somewhat hawkish when he was asked about the rising global interest rates and high household debt in New Zealand and Hodgetts replied that households in New Zealand can probably deal with higher interest rates, as long as there is no “abrupt change.”
Moving on, the Kiwi’s rise accelerated during Wednesday’s London session. And as pointed out in Wednesday’s London session recap, that was due to positive political developments in Spain and Italy that caused risk appetite to return with a vengeance.
Risk-taking persisted during Thursday’s Asian session. The Kiwi got slapped lower, though, apparently as a reaction to ANZ’s Business Outlook Survey since it revealed that the business confidence index deteriorated from -23.4 to -27.2.
The risk-on vibes carried over into Thursday’s Morning London session, though, so the Kiwi eventually regained its footing before stumbling again when risk aversion returned during Thursday’s U.S. session. Kiwi pairs are still well above last week’s closing prices, though.