The Kiwi extended its losing streak last week. Will this week’s catalysts help turn the tides for the comdoll?
NZIER business confidence (July 2)
As you can see below, Kiwi bulls and bears tend to pay attention to business sentiment reports. This week we’ll see the quarterly report from NZIER.
Last April’s release didn’t really paint a pretty picture with businesses generally expecting worsening business conditions. Still, the slightly better-than-expected headline reading helped prop the Kiwi especially against the Aussie. Will we see another intraday spike this week?
Overall risk sentiment
There are no top-tier reports scheduled from New Zealand this week, so Kiwi players will most likely continue to take cues from overall risk appetite.
This week both Washington and Beijing could share more about the tariffs that are kicking in on July 6. If China and the U.S. threaten additional taxes on each other’s products, then we might see more risk aversion and Kiwi weakness across the board.
And then there’s the political showdown in Germany. Angela Merkel’s Interior Minister and CSU leader Horst Seehofer just offered to resign from all offices, saying that his conflict with the Chancellor over migration is affecting the “credibility” of his role as party leader.
For now, Seehofer’s resignation is igniting speculations of Merkel losing her coalition and maybe losing more support from both critics and allies.
Last Week’s Price Review
The Kiwi was last week’s biggest loser and it had a repeat performance this week since it’s the biggest loser yet again (as of 7:00 am GMT).
Kiwi bears can thanks (and Kiwi bulls can curse) the Kiwi’s weakness on the prevalence of risk aversion this week, due in large part to trade war fears.
But as marked on the chart above, however, risk sentiment wasn’t the only driver of the Kiwi’s price action since the Kiwi got whupped hard when ANZ’s business outlook report revealed that business confidence in New Zealand plummeted from -27.2 to -39.0 in June, which is the worst reading since November 2017.
To make matters worse for the Kiwi, risk aversion also ramped up and commodity prices fell after China devalued the yuan early on Wednesday.
And while risk appetite returned during Thursday’s Asian session and U.S. sesion, the higher-yielding Kiwi did not get any support on Thursday, very likely because of the disappointing RBNZ statement.
As for some deets on the RBNZ statement, you can check out Forex Gump’s Central Bank Roundup.
The gist of it, though, is that the RBNZ repeated its forward guidance that it now has a neutral monetary policy bias when it stated that:
“[The RBNZ is] well positioned to manage change in either direction – up or down – as necessary.”
The RBNZ also expressed some concern with regard to New Zealand’s weaker-than-expected GDP growth and fiscal policy when it noted that:
“[T]he recent weaker GDP outturn implies marginally more spare capacity in the economy than we anticipated. The Government’s projected spending impulse is also slightly lower and later than anticipated.”
Overall, the RBNZ statement gave a somewhat dovish vibes, which is likely why sellers eventually won out and kept applying bearish pressure on the Kiwi, even as risk appetite returned.
The Kiwi seems to be making a recovery during Friday’s Asian session, though, thanks to improving risk sentiment and a solid bullish boost after China announced that it will allow more foreign investments. Also, news hit the wires that E.U. members agreed on a migration deal, which caused risk sentiment to improve even further.
Kiwi pairs still have a long way to go before they can reach last week’s closing prices (dashed horizontal line), though, so it’s likely that the Kiwi will be a net loser this week.