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Market Update

EncoreFX’s daily market updates are written by our experienced and professional dealing team.

Kiwi Rollercoaster Continues | Markets Await US-China Trade Talk Result

Published February 25, 2019

The New Zealand Dollar finished the week on a positive note gaining around half a cent on Friday night on the back of a weaker US Dollar. Market optimism of the US and China reaching a satisfactory compromise in their trade stand off gave risk assets a boost on Friday night, which included the New Zealand Dollar.

The Kiwi had earlier been under pressure on Thursday and Friday largely due to a weaker Australian Dollar which ran into trouble on reports that China had been blocking coal imports from Australia. Also weighing on the AUD was an updated forecast from Westpac Bank predicting the RBA to cut interest rates twice before the end of the year.

NZD Tight Range Continues

Last weeks article spoke of the relatively tight trading range for the NZD/USD with 89% of trading days over the last three months, seeing the Kiwi open in either the 0.67’s or 0.68’s. Last weeks rollercoaster ride failed to buck this trend, with the Kiwi falling to an interbank low of 0.6750 on Thursday as the AUD fell sharply, before making back the ground on Friday night and heading back to the mid 0.68’s. No clear trend is in place for the NZD/USD as the market awaits developments in the US-China trade war, Brexit developments, US economic data, and of course local NZ data and which way the RBNZ will lean when it finally makes a move on the OCR.

The Week Ahead

All of the major themes mentioned above, impacting the NZD, remain in place;

Trade Wars

Markets appear to be betting on a favourable outcome to the US-China trade stand off as optimism around an extension to the negotiations continues to grow. Chinese Vice Premier Liu has extended his trip to Washington for a few more days, a good sign that talks with US Trade Representative Lighthizer were progressing. Over the weekend, President Trump labelled the talks as “very productive”. It looks likely that the March 1st deadline for higher tariffs will be extended.

US Data

FOMC Meeting minutes released last week gave a “wait and see” tone, with future rate movements to be dictated by economic data. Policymakers were unclear on what adjustments to rates might be necessary later this year, with some suggesting that rate hikes might be necessary if inflation is not under control. However, the odds of the next move being a rate cut have been gradually increasing. Much will depend on how the US economy holds up, and all eyes will be on data releases later in the week, with US GDP on Thursday, and Manufacturing ISM on Friday.

Local NZ Data

It was a busy end to the week for Central Bankers around the world with China, ECB, and BoJ all expressing concern over weakening economies. It remains to be seen which way the RBNZ will lean and they have repeatedly stated that the next move could be up or down. Much like the U.S, it will be driven by economic data. On the local front this week we have Retail Sales due this morning, Trade Balance on Wednesday, and the latest ANZ business confidence survey out on Thursday.

Brexit

UK Prime Minister Theresa May announced that she would be delaying the parliamentary vote on her Brexit deal. The vote was originally scheduled for this week, but will now happen at some stage before March 12th, allowing May more time for negotiations with the EU.