Thanks to the Reserve Bank of New Zealand not fulfilling traders’ dovish expectations, the Kiwi comes out as the biggest mover and winner this week!
New Zealand Headlines and Economic data
- Kiwis lean on credit cards as January spend increases
- RBNZ Foils Rate-Cut Bets Even as It Pushes Out Forecast for Hike
- New Zealand food prices rose 1 percent in January
- New Zealand Manufacturing PMI Falls To 53.1 In January
- New Zealand December visitor numbers reach new heights
Major Market Drivers for the New Zealand Dollar
First, global risk sentiment was a likely contributing factor to the Kiwi’s relative performance this week, and for a broad rundown of what drove global risk sentiment, check out my review of this week’s risk sentiment drivers and broad market behavior in my Japanese yen weekly review here.
In short, we saw risk-on sentiment to start the week and dominated almost all the way through Friday as traders seemed to focus on the improving geopolitical risks related to the U.S.-China trade negotiations and the avoidance of another U.S. government shutdown with a new border security bill. Minus a broad turn towards risk-off after a very weak U.S. retail sales report during the Thursday U.S. trading session, traders were favoring the comdolls over the safe havens from the get go, and we can even see that traders favored the Loonie, Aussie and Greenback over the Kiwi early in the week.
That all changed early in the Wednesday Asia session when the Reserve Bank of New Zealand gave its latest monetary policy statement, holding the cash rate at 1.75% as expected, but what wasn’t expected was their not-so-dovish tone. Whether it was because of the recent plethora of global economic data signaling the growing risk of a global slowdown, or the maybe even the disappointing New Zealand quarterly employment report from a week before, traders were expecting a more dovish tone from the RBNZ and even the possibility of a rate cut this year.
Boy were traders surprised at the time of the event when the RBNZ signaled that the next interest rate move is more likely to be higher than lower, even despite them recognizing that international risks have increased over recent months. And just like that, the Kiwi popped higher on the news, with most Kiwi pairs jumping big around two times their average weekly ranges.
After an expected pullback after such a huge move, the Kiwi picked up buyers once again going into the Thursday Asia trading session, possibly on an improvement in New Zealand food prices. But it could also have been supported by the positive Chinese trade data later in the session, signaling that China is weathering the trade war situation with the U.S. pretty well.
And after another broad dip going into the Friday session, possibly on a pull back after weak New Zealand’s manufacturing PMI and new visitors data, buyers stepped back in to lift the Kiwi. This was likely a return to broad risk-on sentiment behavior as fears of a U.S.-China trade war and a U.S. government shutdown fades away to lift all risk assets into the close, leaving the Kiwi as the one to rule them all this week!