The Kiwi will soon be marking its third consecutive week of net losses since the Kiwi is currently lagging behind in third-to-last place (as of 8:00).
Like last week, the Kiwi had a promising performance during the first half of the week, but began to lose out during the later half.
And the Kiwi’s poor performance this week was due to the FOMC statement, the prevalence of risk aversion, and New Zealand’s disappointing GDP report.
The Kiwi had a promising start, thanks to the cautious risk-taking and Greenback weakness during Monday’s Asian session.
However, demand for the Kiwi began to fade during Monday’s morning London session, thanks to news that U.S. Trade Ambassador Dennis Shea and Chinese WTO Ambassador Zhang Xiangchen were launching verbal salvos at one another at the WTO meeting.
Risk aversion then persisted during Monday’s U.S. session, weighing down on the Kiwi even further.
Even so, NZD bulls kept trying to push the Kiwi higher, likely because the Greenback continued to show weakness.
Anyhow, NZD bulls would finally get their way during Tuesday’s Asian session, thanks to signs of returning appetite for risk and ANZ’s latest business confidence survey, which revealed that business sentiment improved.
Risk aversion later returned during Tuesday’s London session, but the Greenback was broadly weaker at the time, so the Kiwi showed resilience and soldiered on.
Unfortunately for the Kiwi, the Greenback recovered its footing and risk aversion persisted throughout Tuesday’s U.S. session, so the Kiwi’s resilience began to crack.
NZD bulls kept supporting the Kiwi, though, limiting the Kiwi’s losses and keeping NZD pairs above last week’s closing prices (dashed, horizontal line). It also helped that risk sentiment became more mixed during Wednesday’s Asian session and risk-taking began to prevail during Wednesday’s London session.
However, NZD bulls began showing signs of fatigue when word got around that U.S. Trade Ambassador Dennis Shea and Chinese WTO Ambassador Zhang Xiangchen had another verbal battle at the WTO meeting.
And when the Fed finally announced a rate hike and released its updated forecasts during Wednesday’s U.S. session, the Kiwi weakened against everything except the Aussie, very likely because of interest rate differentials since the Fed’s projected path for the Fed Funds Rate shows that the Fed expects two hike two more times in 2019.
That is admittedly a downgrade compared to the Fed’s September forecast of three more hikes. Nevertheless, the market was expecting either only one hike or no more hikes in 2019, so two more hikes was a pleasant surprise for USD bulls and an unpleasant surprise for NZD bulls.
The Fed’s rate hike and announcement that it would continue to hike next year, also triggered concerns that credit conditions would tighten, which caused risk aversion to come back in force, kicking the risk-sensitive Kiwi even lower.
The Kiwi held steady against the Aussie, though, and it wasn’t until New Zealand’s disappointing GDP report was released that the Kiwi’s collapse became total and complete.
And when Thursday’s Asian session rolled around, the Kiwi found only more pain thanks to another bout of risk aversion.
The Kiwi would finally get a chance to lick its wounds during Thursday’s London session. Risk aversion was actually still the dominant sentiment back then, but the Greenback was tanking at the time, which gave the Kiwi some relief.
The Kiwi also apparently got a lift when Chinese Commerce Ministry spokesman Gao Feng said that trade talks are progressing well and that:
“The two sides will arrange consultations including meetings and calls at any time as needed to promote the implementation of the consensus of the heads of state.”
Unfortunately for the Kiwi, the Greenback regained its footing and risk aversion refused to go away during Thursday’s U.S. session, so buying pressure on the Kiwi began to abate.
There were also rumors flying about that the U.S. Department of Justice (DOJ) was planning to indict two Chinese hackers who are allegedly linked to the Chinese government, which naturally fueled doubts over the progress in trade talks.
And those rumors were apparently true.
Two Chinese Hackers Associated With the Ministry of State Security Charged with Global Computer Intrusion Campaigns Targeting Intellectual Property and Confidential Business Information https://t.co/bRQPQE02Dx pic.twitter.com/jz7Dzy6ExR
— Justice Department (@TheJusticeDept) December 20, 2018
Instead of pulling the Kiwi lower, the official announcement from the DOJ actually caused support to form on many NZD pairs, likely because a “sell the rumor, buy the news” scenario played out.
After that, NZD pairs began to trade roughly sideways. NZD pairs had a noticeable downward tilt, though, likely because of the persistent risk-off vibes.