The RBNZ is up this week! Will the central bank pull another “dovish hold” that will drag the Kiwi back down against its counterparts?
RBNZ statement (Sept. 26, 9:00 pm GMT)
As expected, the Reserve Bank of New Zealand (RBNZ) kept its rates steady in August. What investors didn’t expect, however, was that the central bank would be dovish in the process.
Not only did RBNZ cut its growth, interest rates, and exchange rate forecasts, but it also emphasized growth risks and talked about how members could also cut their rates if growth slows further beyond potential.
Fortunately for Kiwi bulls, analysts don’t expect to see changes this week. In fact, many believe that last week’s strong GDP report have given room for the RBNZ to watch and wait before it makes any moves.
Don’t expect a non-mover, though! Governor Orr will conduct a presser an hour after the statement is released.
Y’all might want to watch out for some more dovishness or even jawboning especially since forward-looking indicators such as business surveys have pointed to economic weaknesses.
Overall risk sentiment
As you can see below, the high-yielding Kiwi still reacts strongly to market sentiment.
With the FOMC likely causing waves in the markets some time in the middle of the week, expect to see the Kiwi moved by ripples. Specifically, watch how the Greenback reacts and how the Fed’s statements affect appetite for the dollar.
Of course, keep your eyes peeled for any news about the global trade war. The U.S. and China’s planned tariffs are scheduled to take effect today, so we might see a bit more risk aversion across the board.
Last Week’s Price Review
After three weeks of being a net loser, the Kiwi finally has a very good chance to be part of the winning side since the Kiwi is currently at the head of the forex pack (as of 7:00 am GMT).
Like the Aussie, the Kiwi’s price action was also driven largely by trade-related developments and risk sentiment. However, the Kiwi was also likely feeding off the Greenback’s weakness.
Risk aversion was the dominant sentiment on Monday, for example, but the Kiwi was steady on most pairs and even took ground from the Loonie, the yen, and the Greenback. And the likely reason for that is that the Greenback was actually one of the biggest losers on Monday.
The Kiwi did get slapped lower when the U.S. announce new tariffs on around $200 billion worth of Chinese goods, effective September 24.
However, the tariffs are currently set at 10% and will be increased to 25% by the end of the year, so the announcement wasn’t as bad as expected since the market was expecting that the U.S. will impose a 25% tariff from the get-go. And that allowed risk sentiment to improve a bit, pushing the Kiwi broadly higher in the process.
Like the Aussie, however, the Kiwi would encounter sellers later when China’s threatened that it will retaliate against the U.S.
But unlike the Aussie, which caught a broad-based bid when China announced retaliatory tariffs against the U.S., the Kiwi’s reaction was more mixed (but net positive) in the aftermath of the announcement.
China retaliated by slapping 5-10% in tariffs on $60 billion worth of U.S. goods, which is not as severe as expected since the market was expecting a tit-for-tat response, which is probably why the announcement was still net positive for the Kiwi, allowing the Kiwi to advance against the euro, the pound, the Swissy, and the yen.
Anyhow, the Kiwi would enjoy broad-based demand come Wednesday. And interestingly enough, the Kiwi benefited more than the Aussie from Chinese Premier Li Keqiang’s comment that (emphasis mine):
“One-way devaluation will do more harm than good to China’s economy. China will by no means stimulate exports by devaluing the yuan.”
And that’s probably because that comment also sent the Greenback reeling in pain (except against the yen), which gave the Kiwi an extra boost.
The Kiwi then steadily climbed higher on most pairs after that. And while it looked like market players were beginning to favor the Aussie again (at the Kiwi’s expense), the Aussie was eventually forced to submit to the Kiwi’s domination, thanks to New Zealand’s stronger-than-expected GDP reading.
As for some deets, New Zealand’s GDP grew by 1.0% in Q2 2018, beating expectations for a 0.7% expansion. The reading is also the strongest in two years and, more importantly, is much better than the RBNZ’s +0.5% forecast. And the details were also pretty good since 15 of the 16 industry groups were reporting growth.
Anyhow, there was some follow-through buying since the Kiwi continued to trend broadly higher after that. And it likely helped that risk-taking continued to prevail.
The Kiwi, did shed some of its gains against the euro, the pound, and the Swissy, but that’s because other factors were driving those currencies, as explained in Thursday’s London session recap.
Still, dip demand was notable and most NZD pairs were still tilting to the upside on Friday, likely because risk-taking is still the name of the game.