After a nice jump on the new week for the bulls, traders changed their tune on the Kiwi dollar after weak data from both New Zealand and its trading partners popped up.
New Zealand Headlines and Economic data
- NZ retail sales up 1.7% in December, higher than expected
- Overseas merchandise trade deficit of $914M, the largest on record for a January month
- ANZ’s latest Business Outlook survey shows a net 31% of survey respondents expect deteriorating conditions this year
- New Zealand Building Permits 16.5% vs. 5.4% previous
- The merchandise (goods) terms of trade fell 3.0%, following a 0.1% fall in the September 2018 quarter
Major Market Drivers for the New Zealand Dollar
As usual, global risk sentiment was likely a contributing factor to the Kiwi’s relative performance this week, and for a quick 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, risk sentiment looked like the main driver for New Zealand dollar price action in the first half of the week with positive vibes coming from the removal of the U.S. trade tariff deadline on Chinese goods and possibly on the reduced probability of a “no-deal” Brexit scenario. This likely the reason why we saw the Kiwi out perform more against the safe haven currencies than its out performance against the Kiwi and the aforementioned Brexit update induced British pound rally.
Bullish sentiment topped out and reversed on Wednesday but doesn’t seem to have a direct catalyst related to New Zealand. Maybe it was a late reaction to the weaker New Zealand trade balance data, but it’s possible that given the close economic ties with Australia, traders were taking down Kiwi longs at the same time they were selling Aussie dollars after the very weak Australian construction data, but that’s just a guess.
The Kiwi continued to generally weaken through the rest of the week, sentiment that could be attributed to the disappointing ANZ business confidence data, or like the Aussie, the weak official Chinese PMI data (export orders worst in a decade) could have given traders more concern about China’s close trade partners across that region, prompting some Kiwi selling.
Friday was a bit of a roller coaster ride as the Kiwi found buyers during the European trading session, possibly on the better-than-expected Caixin China manufacturing PMI read, but it looks like the rally couldn’t be sustained as weaker-than-expected U.S. and Canadian data turned traders sour on risk, contributing to the last minute selling push in Kiwi dollars on the week.