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Risk aversion and bond yield action dragged the Kiwi lower last week. Which catalysts can affect the comdoll in the next couple of days?

Business NZ manufacturing index (Oct. 11, 9:30 pm GMT)

The private manufacturing report came in at 52.0 for the month of August last month (vs. 51.2 in July), which helped boost the Kiwi during the trading session the report was released.

If the previous weeks’ business confidence reports were any indication, then traders are also likely to pay attention to a report about New Zealand’s manufacturers.

Watch your newswires closely for any intraday price action you can take advantage of!

Dollar and risk sentiment

As you can see below, Kiwi bulls and bears very much respond to risk sentiment and bond yield price action lately.

For newbies out there, you should know that Kiwi’s higher interest rates became a little less attractive as traders soaked up the Fed’s interest rate hikes and rising U.S. bond yields. Of course, it also didn’t help that the Greenback clobbered its counterparts across the board.

Will we see another bloodbath this week? Or will the dollar bulls find reasons to take profits and buy the Kiwi?

Last Week’s Price Review

The Kiwi is turning in another poor performance this week. In fact, the Kiwi is currently the worst-performing currency of the week (as of 7:00 am GMT).

Overlay of NZD Pairs: 1-Hour Forex Chart
Overlay of NZD Pairs: 1-Hour Forex Chart

The Kiwi got a noticeable bearish kick when the NZIER business confidence index dipped from -20 to -30 in Q3 2018. But for the most part, NZD pairs were trading roughly sideways from Monday until Tuesday.

However, bearish pressure began to grow after Fed Chair Powell gave a relatively upbeat speech, likely because monetary policy divergence came into play (against NZD) since the RBNZ is not expected to hike until Q3 2020 at the earliest.

It also didn’t help the higher-yielding Kiwi none that risk aversion was the prevailing sentiment and continued to prevail until Wednesday’s Asian session.

Risk sentiment switched back to risk-on during Wednesday’s European session but the Kiwi’s slide only accelerated (except against the Aussie).

There were no apparent reasons for the Kiwi’s weakness, but I did  note in Wednesday’s London session recap that the Kiwi’s yield advantage may have been negated by rising U.S. bond yields at the time, which highlighted the monetary policy divergence between the RBNZ and the Fed. Also, the Kiwi may have fallen prey to the Greenback’s strength at the time.

At any rate, it was downhill for the Kiwi from there. Sure, the Greenback’s rally stalled on Thursday. However, risk aversion refused to go away on Thursday.  And since risk aversion persisted during Friday’s Asian session, the Kiwi also continued to slide on most pairs.