Risk appetite and dollar sentiment dragged the Kiwi lower for last week. Which themes can move it around this time?
Trade balance (Nov. 26, 9:45 pm GMT)
New Zealand clocked in a RECORD HIGH trade deficit in September, which was not a welcome news for investors who were already worrying about the impact of the U.S.-China trade war on the demand for New Zealand’s exports.
This week analysts expect to see the deficit tighten from 1,560M NZD to 850M NZD as oil imports calm down from its 86.6% increase in the previous month.
RBNZ’s financial stability report and presser (Nov. 27, 8:00 pm GMT)
Back in May, the Reserve Bank of New Zealand (RBNZ) named three key vulnerabilities to the financial sector: household indebtedness, dairy sector indebtedness, and exposure to international risks.
Governor Orr and his team also shared that “Monetary policy is not expected to tighten in New Zealand for some time” due to high debt levels in the household sector.
Macro-Financial Department Head Bernard Hodgetts caused a bit of uproar, however, when he hinted in his testimony before Parliament that New Zealand could see higher rates as long as there is no “abrupt change.”
Orr will be back with a presser to explain the financial stability report two hours after its release. And if that’s not enough, the RBNZ head honcho will talk about the report before Parliament at 12:00 am GMT on November 28.
Overall risk sentiment
As you can see below, Kiwi’s price action tends to take cues from demand for the dollar and higher-yielding bets.
The G20 meetings at the end of the week is one to watch out for, as leaders and their teams attempt to untangle some of the world’s biggest market concerns.
Brexit-related developments, for example, could inspire volatility among the high-yielding currencies.
And then there’s the highly-anticipated meeting between Trump and Xi Jinping. While both the U.S. and China have shown willingness to reach a trade deal, will they get over their differences soon enough to hint at one this week?
Last Week’s Price Review
After three weeks of total domination, the Kiwi was finally dethroned and is currently trailing behind in second-to-last place (as of 8:00), thanks to the prevalence of risk aversion and the Greenback’s show of strength on Tuesday.
Like the Aussie, most NZD pairs started the week by gapping lower because of disappointing news over the weekend that APEC leaders failed to agree on a communique for the first time, as well as returning trade war fears because of the verbal exchange between Chinese President Xi Jinping and U.S. Vice-President Mike Pence during the APEC Summit.
And more pain would come the Kiwi’s way since risk aversion began to win out as the day progressed.
However, the Kiwi would get a chance to lick its wounds during Monday’s U.S. session.
Risk aversion was still the dominant sentiment back then, but the Greenback took hits at around 3:00 pm GMT and the Kiwi began to broadly recover at around the same time, so the Kiwi was likely just feeding off the Greenback’s weakness.
The Greenback then continued to weaken during Tuesday’s Asian session, so the Kiwi traded even higher.
Unfortunately for the Kiwi, the Greenback regained its mojo and risk aversion intensified during Tuesday’s London session, so the Kiwi’s resilience was finally eroded and the Kiwi was forced to beat a hasty retreat (except against AUD and CAD).
The Greenback’s offensive lost its momentum come Wednesday, however. Also, risk sentiment began to improve, so the Kiwi began to claw its way back up.
Moreover, the Kiwi got an extra bullish boost during Wednesday’s London session, thanks to a report that the WTO will set up a dispute resolution panel to rule on U.S. tariffs on aluminum and steel, as well as this Fed-related rumor that gave the Greenback a bearish kick while boosting commodities and the comdolls:
🇺🇸 The Federal Reserve is starting to consider at least a pause to its gradual monetary tightening and could end its cycle of interest rate hikes as early as the spring, MNI reports, citing senior people at the #Fed they didn’t identify.
— Christophe Barraud🛢 (@C_Barraud) November 21, 2018
However, follow-through buying was only limited and the Kiwi started to weaken across the board when Wednesday’s U.S. session rolled around. Bears then continued to kick the Kiwi lower on Thursday, thanks to the prevalence of risk aversion at the time.
Interestingly enough, the Kiwi’s slide stopped after a draft of the post-Brexit relationship between the U.K. and E.U. was leaked during Thursday’s morning London session. The Kiwi even began to trade sideways even as risk aversion continued to plague European markets. Perhaps the Kiwi was just acting as an anti-dollar since the Greenback also began trading sideways back then?
At any rate, most NZD pairs failed to move back up and above last week’s closing prices so three weeks of Kiwi domination will soon come to an end.