The Kiwi finally broke its losing streak last week. Will this lead to more gains for the comdoll this week?
Let’s look at the possible catalysts that might influence the currency’s price action:
Quarterly retail sales (Aug. 21, 10:45 pm GMT)
Retail trade activity rose by 0.1% in Q1 2018, much weaker than the downwardly revised 1.4% growth seen in Q4 2017.
The numbers put the annualized gains at 3.0% for the quarter, which is also lower than the 5.4% uptick we saw in Q4 2017. The (unexpectedly) weak reading gave the Kiwi a poor start at the beginning of the week.
Tomorrow analysts expect to see a 0.4% gain for this year’s second quarter, with the core reading seen at 0.8% after Q1’s 0.6% growth.
A much stronger consumer spending report could lead to faster inflation and the Reserve Bank of New Zealand (RBNZ) taking notice and maybe reconsider its delay in its rate hike schedule.
Trade balance (Aug. 23, 10:45 pm GMT)
Last month’s trade balance release also inspired bearish vibes among Kiwi traders.
See, New Zealand’s 208M NZD surplus turned into a 118M NZD deficit which, combined with worries over the Chinese yuan’s sharp depreciation, dragged the Kiwi lower across the board.
This time around market players see a 400M NZD trade deficit for the month of July. This would be the first month to reflect the U.S. and China’s additional tariffs on each other’s products, so it would be interesting to see if China’s demand for New Zealand’s products have changed since then.
Global trade-related updates
As you can see below, the high-yielding Kiwi also takes cues from market’s appetite for risk and the Greenback.
The U.S. is set to meet with Chinese delegates over the next couple of days, which is just before Uncle Sam is scheduled to implement additional tariffs on more Chinese products on August 23.
Will the parties come to a solution before more tariffs kick in? More importantly, how will traders price in the uncertainty and the outcome of the meetings?
Last Week’s Price Review
The Kiwi is currently the top-performing currency of the week (as of 7:00 am GMT). Did that surprise you?
The Kiwi’s bounce this week is a reversal of fortune since the Kiwi was last week’s biggest loser. And if the Kiwi can maintain its lead until the week ends, then the Kiwi can also say goodbye to three consecutive weeks of net losses.
The Kiwi had a steady start and traded roughly sideways for the rest of the day, which is a bit odd since risk aversion was the name of the game on Monday.
There was no clear reason as to why, but I conjectured in Monday’s Asian session recap that bears may have already inflicted enough pain on the Kiwi after last week’s RBNZ-induced beat-down, so we may have been seeing some short-covering.
At any rate, the Kiwi began to trade broadly higher on Tuesday, likely because of signs of risk-taking during Tuesday’s Asian session.
Risk appetite began to fade during Tuesday’s London session, however, so the Kiwi’s price action became more mixed before succumbing to bearish pressure when the Greenback began to climb broadly higher during Tuesday’s U.S. session.
Greenback strength then apparently continued to sap demand for the Kiwi on Wednesday. And it didn’t help that risk aversion continued to dominate.
However, the Greenback’s climb stalled when Wednesday’s U.S. session rolled around, which gave the Kiwi some respite and even allowed the Kiwi to recover a bit on some pairs, even as risk aversion persisted.
Risk-taking returned on Thursday, though, thanks to Vice Minister of Commerce Wang Shouwen announcement that China will meet with U.S. representatives in Washington for trade talks later this month. And as a result, the higher-yielding Kiwi’s price action began to tilt broadly to upside.
Incidentally, it’s this final bullish push on Thursday that’s the reason why the Kiwi is headed for a strong finish this week since the Kiwi’s broad-based rise on Thursday pushed all NZD pairs above last week’s closing prices (dashed horizontal line).