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Market Analysis

Six-Week Highs for NZD after S&P Raises Outlook

February 04, 2019
BY Michael Stark

The New Zealand dollar is holding on to six-week highs against a range of major currencies so far today in the aftermath of positivity from S&P and a series of strong data releases supporting sentiment. The Kiwi dollar made a significant upward movement last week to US$0.6925, close to its year high against the greenback, although a slight pullback has now occurred. Gains for NZD were in evidence against other major currencies as well, reaching ¥75.69 (also a six-week high), $1.6594 to the euro and $1.8960 to the pound sterling in early trading today.

Ratings and data still buoying NZD

While the Federal Reserve’s relative dovishness last Wednesday has been a factor in the Kiwi dollar’s gains against its American counterpart since last week, ratings have been more in focus. Last Thursday, the ratings agency Standard & Poor’s announced that it had changed its credit outlook for New Zealand to ‘positive’ from ‘stable’, leaving the AA rating the same. The impact on the New Zealand dollar was almost immediate, surging over 25 pips in the few hours after the release.

Economic data also dominated the news for NZD last week. December’s trade balance beat expectations by 39 million, with exports jumping over half a billion from the previous figure. Adding to positivity for NZD was the release late last night of building consents for December. The figure of 5.1% is an increase of a full 7% from the previous negative reading.

Focus has also been on last week’s rally in various stock markets around the world, with the S&P/NZX 50 index joining this to post a gain of over 1% through the week. A rally for the index does appear to be supporting demand for the Kiwi dollar by international investors.

Kiwi employment data centre stage this week

This week is critical for data from New Zealand. Q4 employment change is expected at 21:45 GMT on Wednesday night, with the consensus prediction currently standing at a gain of half a percent. This is less than half of the figure for the third quarter. Also predicted to be negative for the Kiwi dollar are the expected declines in Q4 participation rate and unemployment rate, scheduled for the same time as the key Q4 employment change figure.

Ongoing gains likely for NZD, but data a risk

Exness’ analysts consider that strong gains are likely for the Kiwi dollar in the next couple of days based on NZD’s fundamentals overall. On the other hand, Wednesday’s all-important economic data will probably cause high volatility and maybe a reversal if analysts’ predictions turn out to be accurate.

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