New Zealand Dollar At Risk Ahead of RBNZ, Chinese Data
Fundamental Forecast for NZ Dollar: Neutral
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The New Zealand Dollar fell slightly over the past week to close at 0.8218 Friday. The Kiwi was dragged on after China’s - one of biggest trading partner to New Zealand - customs administration said today that imports fell 15.2 percent in February from a year earlier. Furthermore, a jump in US February nonfarm payrolls and 4-year low jobless rate, helped extend the New Zealand Dollar’s drop against the greenback through the final trading session of the week.
Looking into next week, the top headlines traders will look to will be topped by the Reserve Bank of New Zealand rate decision and Monetary Policy Statement report on March 14. RBNZ Governor Wheeler announced this past week that the central bank has introduced a Governing Committee to discuss decisions on monetary and financial policy. Prior to now, Deputy and Assistant Governors had individual responsibilities for particular areas of the bank. Thus, in the monetary statement report next week, we will read opinions on inflation and economic outlook from more of the broad. In turn, this may increase the likelihood of new policy adoption and could thereby increase volatility for the NZ dollar. Yet, keep in mind that the Governor still retains the right of veto on committee decisions, which means any action the central bank makes ultimately remains Wheeler’s call.
This time around, the central bank is likely to hold its interest rate unchanged at its currently, historically low level of 2.5 percent. This is a level the RBNZ has maintained since March 2011. The market has showed some improvements with a decreasing unemployment rate but not enough to signal a stable recovery. New Zealand exports fell again in January following rises in December and November last year. We will have a better overall view of the New Zealand economy when the fourth quarter GDP figures are release in a few weeks. If that is the case, in the medium term, traders may see room for interest rate hikes. In the short-term, however, amid the concerns on the uncertainty in New Zealand fundamentals, the priority for RBNZ is to boost investment with relatively low interest rate. The Kiwi, as a consequence, will find less support from the central bank – though in a world of stimulus, that may not necessarily be a bad thing.
China, New Zealand’s most important business partner, will vote and decide on its next central bank governor during March 15 to 16, which will also weigh on the Kiwi. The current PBOC governor Zhou Xiaochuan has been a key architect of financial reform in the world’s second-largest economy. Whether his successor will continue the monetary and fiscal policy where China moves on a sustainable track will have a great impact on its consumption capacity to purchase products overseas including from New Zealand. As such, the uncertainty in China may increase the risks in the New Zealand dollar. - RM