Dollar weakness and a cocktail of other catalysts boosted the Kiwi last week. Will this week’s market events extend or reverse the comdoll’s fate?
Trade balance (Oct. 24, 9:45 pm GMT)
New Zealand’s 9.9% annualized jump in exports wasn’t enough to tighten its trade deficit in August. In fact, it registered a deficit of 1,484M NZD, the widest on record. Yikes!
Luckily for Kiwi bulls, traders eventually paid more attention to a better-than-expected business confidence report released later in the trading session.
This week analysts expect to see the deficit tighten to 1,365M NZD for the month of September.
A wider-than-expected release could inspire a selloff since it puts New Zealand in a weak position amidst the U.S.-China trade war. On the other hand, an upside surprise could inspire the bulls to push the comdoll higher across the board.
Take note that New Zealand won’t be printing any other data, so the report will likely set the tone for Kiwi’s intraday price action.
As you can see below, Kiwi’s price action can take cues from U.S. dollar demand.
This week pay attention to (more?) concerns over a Fed rate hike. I see in our forex calendar that a bunch of FOMC members are scheduled to give their two cents, which could reinforce the fact that Powell and his team are planning more rate hikes in the foreseeable future.
Meanwhile, issues such as Italy’s debt, Trump’s opinion on the Fed’s rate hike (not good) and positioning ahead of Uncle Sam’s GDP report on Friday could also affect the demand for the Greenback.
Make sure you stay glued to the tube in case we see market-moving catalysts that might affect demand for the high-yielding Kiwi!
Last Week’s Price Review
The Kiwi is turning in another good performance this week since the Kiwi is currently the one currency to rule them all (as of 7:00).
And Kiwi bulls can thank the Greenback’s weakness on Monday and the better-than-expected reading for New Zealand’s CPI for that, although news that Norway, the E.U., and China have requested the WTO for a dispute resolution panel to address U.S. tariffs on aluminum and steel, as well as upbeat comments from the PBoC governor, also helped in cementing the Kiwi’s gains.
Like the Aussie, the Kiwi caught a bid from the get-go. Unlike the Aussie, however, demand for the Kiwi was clearly much stronger since NZD pairs easily climbed above last week’s closing prices (dashed horizontal line).
Demand for the Kiwi began to ramp up during Monday’s London session. And as noted in Monday’s London session recap, risk aversion was the dominant sentiment back then, but the Greenback was broadly in retreat, so the Kiwi was likely feeding off the Greenback’s weakness at the time.
In hindsight, however, it’s possible that the Kiwi may have been boosted by preemptive positioning ahead of New Zealand’s CPI report since that surprised to the upside, which caused the Kiwi to spike higher across the board as a knee-jerk reaction. However, there was no follow-through buying and the Kiwi even began giving back its gains after the report was released.
At any rate, the Kiwi would find buyers again, likely because of the risk-friendly vibes on Tuesday.
Risk aversion returned in force during Wednesday’s London session, though, so the Kiwi shed some of its gains. The hawkish FOMC minutes also didn’t do any favors for the Kiwi since that only highlighted the monetary policy divergence between the Fed and the RBNZ.
The Greenback’s rally stalled on Thursday, however, and risk-appetite also got revived by the time Thursday’s London session rolled around, so NZD pairs began to tilt to the upside again.
Risk sentiment flipped back to risk-off during Thursday’s U.S. session, though, so the Kiwi lost ground against the yen, the Swissy, and the Greenback.
However, word got around that Norway and the E.U. have requested the World Trade Organisation (WTO) to establish a dispute resolution panel to verify the legality of U.S. tariffs on steel and aluminium, which apparently slowed the Kiwi’s retreat against the yen, the Swissy, and the Greenback.
And when a Reuters report later claimed that the U.S. also filed the same request to the WTO, NZD pairs began marching broadly higher again, despite the risk-off vibes.
And the Kiwi’s rise was likely sustained by China’s official announcement that it will also ask the WTO to form a dispute resolution panel, as well as PBoC Governor Yi Gang’s upbeat statement on the economy since the latter, in particular, apparently helped to revive risk sentiment during the Asian session.