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Market Analysis

Fundamental Analysis: Kiwi Dollar Stabilizes after Better Data

June 17, 2019
BY Michael Stark

New Zealand’s beleaguered dollar moved up slightly today against various major currencies. One of the main drivers was an improvement in Services NZ PSI this morning. Kiwi shares also held close to all-time highs this morning. On the other hand, NZD’s gains were small. The string of weaker data recently and the prospect of another rate cut are important negative factors.

NZDUSD recovered slightly above the key area of 65 US cents this morning. The Kiwi dollar also retraced to a degree back above ¥70.70. EURNZD and GBPNZD have been more volatile, but still made small overall losses to NZ$1.722 and NZ$1.934 respectively.

Some positivity from data and shares today

Business NZ’s performance of services index printed a better reading of 53.6 late last night GMT. April’s figure was also revised upward to 52. Although these figures are still lower than the long-term average, they indicate that services in New Zealand are still reasonably far from contraction.

Despite overall smaller increases in activity, New Zealand’s service data stands in contrast with many other countries. Equivalent data in the EU, Japan, the UK, and others has been significantly weaker for most of 2019 so far.

Shares have also given some limited support to NZD today. The S&P/NZX 50 index posted a slight loss today to around 10,170. However, this is still very close to the record 10,265 last month. Usually the Kiwi dollar finds some support from strength in shares because this generates demand for currency to purchase the shares.

Data, rates, and more look bleak in general

So much for the positives, but overall the Kiwi dollar’s fundamentals have been weak in June so far.  Business NZ PMI last Thursday night came in at 50.2, missing the consensus by over 4 points and indicating that this sector was close to stagnation. ANZ consumer confidence was also down 8 points to 115 at the end of May.

Global Dairy Trade’s price index was also down 3.4% at the start of June. This figure is important for traders of the New Zealand dollar because of dairy’s key role in NZ’s exports, particularly to China. On the trade front, this week has been fairly calm so far. Donald Trump’s latest threat of more tariffs on China if Xi Jinping refuses to meet him at the upcoming G20 summit hasn’t had much effect yet on markets.

Although there have been some positive releases over the past few weeks, the picture overall is less strong for New Zealand’s economy. This could strengthen the case for another cut to rates by the Reserve Bank of New Zealand (RBNZ) next Wednesday.

GDP data key for NZD this week

The most important releases for the Kiwi dollar this week are on GDP growth. Two figures are due on Wednesday night at 22.45 GMT:

  • Quarterly GDP growth rate (Q1); consensus 0.6%, previous 0.6%
  • Annual GDP growth rate (Q1); consensus 2.5%, previous 2.3%

If the annual figure does print higher in line with the consensus, NZD would receive significant fundamental support. These figures could also help to inform the RBNZ’s decision next week.

Beyond these two crucial releases, traders should not lose site of other data. Westpac consumer confidence is due at 22.00 GMT tonight, with a slight drop expected. Global Dairy Trade will also release its latest price index at 14.20 tomorrow. Probably the least significant release is Q1 current account tomorrow night at 22.45. The consensus here suggests a gain back into positive territory.

Apart from New Zealand, there are two centrally important releases for paired currencies this week. The Fed will decide its new funds rate on Wednesday at 18.00 GMT. If there is a cut as some expect, NZDUSD would probably make strong gains, in the short term at least. Traders of GBPNZD should also watch the Bank of England’s meeting and decision on Thursday from 11.00 GMT.

Continuing bounce possible for Kiwi dollar

Based on recent fundamentals, a small ongoing upward movement seems to be possible for NZD. Beyond the next couple of days, though, central banks are likely to dominate the news. A cut by the Fed would almost certainly lead to strong and unpredictable movements for NZDUSD.

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