Fundamental Analysis: Slight Gains for the Kiwi Dollar

The New Zealand dollar has strengthened slightly since the end of last week amid slightly better data from New Zealand. Traders are gearing up for a series of crucial releases from New Zealand this week, foremost among them the RBNZ’s decision on rates.

The Kiwi dollar has made very small gains in today’s session against its American counterpart to around 68.8 US cents. A bigger bounce came against the yen to around ¥75.80. However, EURNZD has been buoyed today by better German data to around NZ$1.645.

Decent GDP data and shares near record highs

Last week’s Kiwi data was fairly supportive overall for NZD. The main release on Wednesday of GDP data for Q4 2018 met the consensus at 0.6%, double the previous figure. New Zealand’s current account deficit also shrank to NZ$3.26 billion, about half of the figure for Q3. These releases gave some support to NZD.

The Kiwi dollar also found a degree of support from shares. The NZX 50 index made a slight gain to 9,519 today, not far from its all-time high of 9,551. Turnover has been lower recently and some concern remains over American bond inversion. American 10-year Treasuries now have a lower yield than three-month equivalents, which some say indicates the approach of a recession.

Rates and trade data key

This week features several releases likely to drive high volatility for the Kiwi dollar. The most important is the meeting of the Reserve Bank of New Zealand and its decision on rates.

The RBNZ’s decision is due at 01.00 GMT on Wednesday. In this case, the possibility of a cut remains real. Various economists have noted that the central bank must have come close to cutting last month based on the current slowdown in economic growth around the world.

A cut to 1.5% on Wednesday would still be a surprise that would almost certainly lead to sharp losses for the Kiwi dollar. However, if rates are held as expected, traders would watch carefully for hints on when a cut might occur. As of today, the probability of a cut by August is about 90%. Pricing the move in then means that unexpected positivity from the bank would generate significant tailwinds for NZD.

Although the central bank’s meeting can overshadow regular data, traders should not ignore the other releases from NZ this week. Data on trade balance is due tonight at 21.45 GMT, with some improvement in the monthly figure expected. Thursday’s business confidence at 00.00 GMT is also very important for the Kiwi dollar.

Volatility and possible losses for NZD

The high importance of events this week means that volatility is the only near certainty for the Kiwi dollar. If the RBNZ acts as expected, though, losses are probable for NZD in most of its pairs.

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