The Kiwi dollar begins the week little changed from Friday sitting around the 65 cent level, and holding on to gains of around 1% from a week ago.
The story of last week was the New Zealand Dollar rebounding from recent weakness. The Kiwi had every right to keep falling during a week that saw risk-off sentiment return to markets as global stocks plummeted and US-China trade worries resurfaced. Despite an aggressive global market selloff, the ‘anti-risk’ New Zealand Dollar (and the Australian Dollar) made ground during the week. Under normal situations, the NZD and AUD weaken when there is a risk-off sentiment across financial markets. The bucking of this trend was largely down to investors taking profits on recent short NZD positions which gave the Kiwi some much needed upward momentum after an extended period of selling pressure.
While the NZD finished the week on a fairly calm note, this might only be temporary with many variables at play in the week ahead.
The big question is whether the risk off tone to global markets will continue this week. Global stocks were sold heavily last week triggered by suggestions that U.S interest rates could be going higher than markets had been expecting. Some big announcements this week including U.S Retail sales numbers on Tuesday, and US FOMC meeting minutes on Thursday morning. Both announcements will be watched closely for clues on the pace of future U.S rate hikes. Better than expected retail sales and signs of a hawkish Fed may place further pressure on stock markets but could also reignite gains in the USD which may send the NZD lower once again. The other unknown is whether last weeks unwinding of short NZD positions will continue this week and provide support to the Kiwi.
One announcement that could impact Kiwi dollar buying is inflation data due on Tuesday morning. An increase in CPI for the September quarter, above market forecasts of 0.70%, would strengthen the case for the RBNZ to move away from its “sit on the fence” stance and make it more likely that the next move on rates is upwards. Not much else on the local data front, although there is another Global Dairy Auction early Tuesday morning, which always has the potential to surprise.
The USD pushed higher late on Friday after US economic advisor Larry Kudlow hinted that President Trump and Chinese President Xi Jinping are in talks about a possible meeting between the parties late in November. Data released out of China on Friday showed that the fall off in Chinese exports isn’t happening as many though it would. China’s exports strengthened unexpectedly in September, up almost 15%. While more American tariffs are on the way, the ones implemented so far have had little impact and appear to have increased trade between the two countries as many companies stockpile ahead of future tariff implementation. Meanwhile Canada reminded everyone that it is not only the U.S and China that will be impacted as they announced a 25 percent tariff on steel imports from China and other countries to avoid becoming a dumping ground for steel in the face of metal levies imposed by US President Donald Trump
The Australian Dollar mirrored movements in the NZD last week, making gains despite the risk-off sentiment in global markets. All of the factors weighing on the AUD over the past few months remain in place including interest rate differentials with the U.S, and concerns over Chinese economic growth. On the local front this week all eyes will be on the release of RBA Meeting Minutes on Tuesday afternoon and Australian Employment Data due out on Thursday. There will also be much interest in Friday afternoon’s Chinese GDP data for Q3.
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