Dovish outlook and Greenback demand dragged Kiwi to its third losing week last week. Will this week’s catalysts turn the tides on the comdoll?
Here are the potential catalysts:
Quarterly input/output (Aug 16, 10:45 pm GMT)
Input prices rose by 0.6% in Q4 2017, which is higher than the 0.3% uptick that analysts had expected by slower than the 0.9% growth seen in Q3.
Meanwhile, the 0.2% growth in output prices is lower than the 1.1% increase in Q3 but is right around what markets had estimated.
Will we see stronger growth this time around? New Zealand won’t be printing a lot of economic reports this week, so news traders could pay more attention to these quarterly figures.
Dollar and risk sentiment
Now that the RBNZ won’t have as much time under the spotlight, focus could turn to Kiwi’s top counterparts as well as overall risk sentiment in the markets.
Trade-related concerns could continue to move the Kiwi around especially if we see escalation in the U.S.-China trade war. Meanwhile, a reversal of the Greenback’s strength from the previous week could boost higher-yielding currencies like the Kiwi.
Stick around for any headlines that might move risk sentiment, will you?
Last Week’s Price Review
The Kiwi is THE biggest loser of the week (as of 7:00 am GMT), which is a repeat of last week’s performance. That also means that the Kiwi will soon see its third consecutive week of net losses.
|Overlay of NZD Pairs: 1-Hour Forex Char|
The Kiwi was practically trading sideways ahead of the RBNZ statement. NZD pairs did have roughly uniform price action, though, dipping a bit on Monday, likely because of USD strength at the time.
Most NZD pairs then tilted broadly upward on Tuesday, likely because of the risk-on vibes and USD weakness, before jumping broadly higher on Wednesday when the the RBNZ’s Survey of Expectations showed an improvement in inflation expectations.
However, the RBNZ statement came along, which caused the Kiwi to slump super hard across the board. What’s up with that? Well, the RBNZ maintained its neutral forward guidance that:
“The direction of our next OCR move could be up or down.”“We will keep the OCR at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low and stable inflation.”
However, what very likely shocked market players is the fact that the RBNZ downgraded its projected path for the OCR to show a possible rate hike by Q3 2020. And to put that into context, the RBNZ was forecasting a rate hike by Q3 2019 in the May RBNZ Monetary Policy Statement, which is a full year earlier.
|Source: August 2018 RBNZ Monetary Policy Statement|
|Source: May 2018 RBNZ Monetary Policy Statement|
Anyhow, the Kiwi continued to slide lower after that, getting an extra bearish kick when RBNZ Assistant Governor and Chief Economist John McDermott gave some rather dovish comments.
McDermott’s comments that the RBNZ has “been pushed nearer to that trigger point [of a potential rate cut]” and that a rate hike is “off the table for the foreseeable future” are especially jarring, coming from the RBNZ’s Chief Economist.
And to add salt to injury, risk aversion continued to plague the markets as of Friday’s Asian session. In addition, the Greenback was broadly in demand at the time, which may have weighed down on the Kiwi as well.
The Kiwi does seem to be regaining some lost ground against some its peers, though, probably because of short covering. Even so, the damage was already done.