After a rough start to the week on weak New Zealand business sentiment data and global risk-off sentiment, the New Zealand dollar recovers to net winner status on improving global risk sentiment as geopolitical risks and global growth fears faded towards the end of the week.
New Zealand Headlines and Economic data
- New Zealand Headline business confidence fell 2 points to -54% in the September
- In Aug. 2019, the seasonally adjusted number of new dwellings consented in New Zealand rose 0.8%, after falling 1.3% in July 2019
- Economy resilient while the Reserve Bank responds to change
- The latest NZIER Quarterly Survey of Business Opinion (QSBO) shows a further drop in business confidence in the September quarter
- Global risk aversion also kicked into high gear, likely putting additional pressure on the Kiwi on a combination of rising risks from the global manufacturing sector, especially in the Asian region (Operating conditions at ASEAN manufacturing firms deteriorated for the fourth consecutive month in September). This was capped off during the U.S. trading session after a much weaker-than-expected U.S. manufacturing sentiment report (US manufacturing contracts to worst level in a decade).
- It’s also arguable that the New Zealand dollar was taken down with the Australian dollar after the Reserve Bank of Australia cuts interest rates to historical lows. Because of New Zealand and Australia’s close proximity and trading relationship, they often have a strong correlation during major events.
- Another round of risk aversion sentiment hits the markets during the Wednesday session, likely on a combination of U.S. geopolitical risks (Trump impeachment probe gains steam with briefing, depositions) and Asian geopolitical risk (North Korean projectile lands in Japan’s exclusive economic zone, Tokyo says), and new trade war risks (US to impose tariffs on EU aircraft and agricultural products) on top of the global growth slowdown fears from earlier in the week. This pressure on the Kiwi was short-lived though as it was likely the downward move was overdone and Kiwi traders formed a bottom by the start of the U.S. trading session.
- The ANZ World Commodity Price Index was unchanged in September
- We saw a broad move higher in the Kiwi against the majors during the Thursday trading session, arguably on positive sentiment coming from the U.S.-China trade negotiation story after Trump says a Chinese delegation is coming to U.S. next week for trade talks, as well as speculation that the weak global manufacturing data may be enough to spark further rate cuts from the Federal Reserve.
- No major bullish catalysts from New Zealand on the session, so it’s likely the Kiwi saw some support from broad global risk-on sentiment and/or a continued reversion from the extreme negative sentiment from earlier in the week. The net positive U.S. employment report (unemployment ticks lower to 3.5%, August job adds revised higher) quelled some of the fears sparked by weak manufacturing sentiment earlier in the week, but the Kiwi saw some selling following the report, possibly on profit taking / USD strength after the event.