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The Week Ahead in FX Markets – Kiwi shifts to bottom or range – can it hold on?

Published April 8, 2019

By Phil Lynch

The New Zealand dollar opens a shade lower this morning but is still maintaining that 0.67 – 0.69 cent range that we have talked about for many months. For importers – targeting 0.69 cents has achieved the best results. For exporters targeting the low 0.67’s is doing the business.

It was US Non-farm Payrolls data on Friday night that has tipped the NZD toward the bottom of that range. The numbers out of the US were mixed – but the headline number of new jobs came in at 196,000 vs estimates of 180,000. This was in part offset by a drop in average annual earnings, which was down to 3.2% from 3.4% last month. In total, the figures were enough to boost the US dollar, and calm nerves that the US Federal Reserve were acting too slowly in their plan to lower interest rates.

The below weekly NZDUSD chart show the course – and shows the trade range very much intact.

 

 

US Federal Reserve

This week ahead looks reasonably benign on the data front. Key announcements include US CPI data on Thursday morning, which will be followed by the publication of the FOMC’s Meeting Minutes. The first will provide some insight on what the US Federal Reserve should be doing, and the second will provide insight on what the US Federal Reserve is doing. For now – markets are pricing in a 61% chance of a cut by January 2020.

Meanwhile – criticism of the US Federal Reserve lingers, with President Trump on Friday stating to reporters that the Fed’s interest rate increases in 2018 “really slowed us down.”

The Stable Kiwi Dollar – Will it Last?

With the NZDUSD entering its sixth month stuck in a 2-cent trading range, you might be wondering – will it last? As always, it is impossible to predict exchange rate movements with any accuracy. However, we can rely on historical data to teach us valuable lessons.

In the case of the New Zealand dollar, you can see that a normal annual trading range is closer to 10-cents. So we can expect to see the NZD move further yet in 2019. The chart below shows the annual trading range for the NZD for each calendar year, in US cents (click chart to enlarge). The NZD this year is a long way behind ‘normal’.

 

Brexit – A Catalyst for Global Disruption?

This Saturday (NZ time) is the deadline for Britain leaving the EU (Groundhog Day anyone?).  Despite the fatigue that is obvious in the media, the risks surrounding Brexit remain very real and very severe. Here is a quick rundown:

  • The UK is due to leave the EU on 12 April
  • No withdrawal deal has been approved by the House of Commons
  • Theresa May’s own government has not fully supported her deal, and she is now in discussions with the opposition in an attempt to gain support for a revised deal
  • On Thursday (NZ time), Theresa May will request EU leaders for a further extension until 30 June on the basis she can get together another deal. If they refuse, then:
    • Britain could leave the EU with no deal – leading to economic catastrophe
    • Britain could move to revoke Article 50(effectively cancelling Brexit)

It’s looking more likely than ever that the UK will be forced to leave the EU with no deal, and this has been one of the reasons why central banks like our own have adopted a dovish stance on interest rates amidst global uncertainty.