Kiwi made a strong comeback last week over global trade optimism and less hawkish FOMC sentiments. Will the comdoll maintain its bullish trend this week?
Global trade updates
Looks like the “high steaks” dinner turned in favor of the bulls!
In case you missed it, the U.S. and China have decided to stop further tariff increases as they continue to talk about their differences.
While it’s not exactly the trade deal that we were hoping for, a ceasefire is still better than escalating trade tensions between the world’s largest economies.
New Zealand won’t be printing top-tier economic reports this week, so the Kiwi will most likely take cues from overall dollar demand again.
We have a bunch of FOMC member speeches scheduled over the next couple of days including TWO speeches from Chairman Powell himself.
Oh, and don’t forget that it’s NFP week, yo! With Powell hinting that the Fed would soon be more data-dependent, you can bet that market players will go back to watching U.S. economic releases closely!
Last Week’s Price Review
The Kiwi’s three-week domination was ended last week, but the Kiwi made a strong comeback this week and regained its position as the one currency to rule them all (as of 8:00).
And the Kiwi’s rebound this week was thanks to the prevalence of risk appetite, as well as severe USD weakness in the wake of Fed Chair Powell’s speech.
The Kiwi actually had a poor start since NZD pairs gapped broadly lower due to New Zealand’s disappointing retail sales report over the weekend.
Fortunately for the Kiwi, the week started with a bout of risk-taking, so those weekend gaps were quickly closed (and then some).
Sadly for Kiwi bulls, risk aversion started to return during Monday’s London session. The Kiwi also got slapped lower when New Zealand’s latest trade report failed to meet the market expectations and Trump renewed trade war fears when he said the following during Monday’s U.S. session:
“If we don’t make a deal, then I’m going to put the $267 billion additional on.”
“The only deal would be China has to open up their country to competition from the United States. As far as other countries are concerned, that’s up to them.”
Appetite for risk was revived when Tuesday’s Asian session rolled around, though, so the Kiwi got bid higher again.
And like the Aussie, the Kiwi also spiked broadly higher when Chinese Foreign Ministry Spokesman Geng Shuang said the following during a presser:
“The two heads of state agreed to seek a solution which is acceptable to both sides on the trade issues. Now the economic teams from the two countries are in contact to implement the important consensus reached by the two heads of state”
The Kiwi quickly turned lower when Geng Shuang later clarified that he was referring to a Nov. 1 telephone conversation between Xi Jinping and Trump, but dip demand for the Kiwi was apparent, probably because Geng Shuang kept hopes for a trade war truce alive when he said that:
“The China-US summit is just around the corner. We hope that the US can meet China halfway and follow the consensus reached by the two leaders at the telephone conversation to strive for positive outcomes of this summit.”
Kiwi bears would finally get a chance to launch a counter-attack on most NZD pairs when the Greenback strengthened during Fed Vice Chair Richard H. Clarida’s speech.
Sure, Clarida repeated his neutral message that the Fed should be especially data-dependent, but he also revealed that (emphasis mine):
“If, for example, incoming data in the months ahead were to reveal that inflation and inflation expectations are running higher than projected at present and in ways that are inconsistent with our 2 percent objective, then I would be receptive to increasing the policy rate by more than I currently expect will be necessary.”
Kiwi bulls would later regain their mojo, though. And that was apparently due to White House economic adviser Larry Kudlow’s comment that Trump believes that there is a “good possibility” that a deal between China and the U.S. may be struck during the G20 summit. The mostly optimistic RBNZ Financial Stability Report also likely helped.
In any case, the Kiwi then happily trended slightly higher on most pairs after that since hopes for a trade war truce helped to sustain risk appetite on Wednesday.
And the fun (for NZD bulls) doesn’t end there since the Kiwi was one of the main beneficiaries of the Greenback’s severe weakness due to Fed Chair Powell’s speech.
As for some deets and as mentioned in the earlier AUD weekly recap, the two main takeaways from Powell’s speech is that (1) the Fed is adopting a more neutral and data-dependent stance and that (2) Powell now thinks that rates are now “just below” neutral, which contrasts with Powell’s comment during an Oct. 3 speech that rates were “a long way from neutral.”
Sadly for NZD bulls, the November ANZ Business Outlook Survey continued to paint a bleak picture for New Zealand, “with a net 37% of respondents reporting they expect general business conditions to deteriorate in the year ahead,” which caused the Kiwi to slump hard.
Risk-taking persisted, though, so the Kiwi began to recover on most pairs after the slump. Risk aversion did eventually return during Thursday’s U.S. session, but all NZD pairs continued to trade above last week’s closing prices, so the Kiwi is still at the very top spot.
Also, the FOMC minutes apparently helped to limit the Kiwi’s losses, likely because the minutes reinforced the idea that the Fed is shifting to a more neutral and data-dependent stance.