Fundamental Forecast for the New Zealand Dollar: Bearish
- New Zealand Dollar Short-Term Direction Guided by New RBNZ Views
- NFP placed a bid under USD adding further pressure to commodity FX
- For up-to-date and real-time analysis on the Kiwi and market reactions to economic factors currently ‘in the air,’ DailyFX on Demandcan help.
The New Zealand Dollar has remained above its ‘Black Monday’ low of 0.6198. However, this is of little relief for NZD Bulls who look to other economies of similar exposure to the last 30 day’s volatility ahead of RBNZ next week. Markets will look to the RBNZ’s Governor Graeme Wheeler to give any indication whether the market pricing of 50bps being cut over the next 12 months will change. The volatility for NZD against trading partners will be viewed relative to his recent comments on a projected “period of stability” regarding rates.
On the domestic front, we saw the second consecutive week of strong dairy data from the Global Dairy Trade auction, which historically has caused a directional pull on NZD. However, the limited reaction to the strong prints speaks more to the focus on external economic developments and the volatility caused from the drop in developed and emerging economies borse markets.
In addition to the RBNZ announcement, which currently has a 90% pricing in of 25bp cut from the current 3.00% down to 2.75% and another 25bp cut in the next 12 months, we have the NZ Real Estate Institute Sales statistics to cap the week. This typically shows the inflationary pressures that the RBNZ has had to balance the external economic troubles. July’s Homes saw home sales rise 38.8% year of year.
Focus will remain abroad until there are signs of relief that are currently absent. This stress has hit the homeland economy as seen in a 5th straight month of exported commodity prices. The strain seen on the NZ economy is similar to that seen in Emerging Markets although internal property prices are more favorable in New Zealand than emerging and frontier economies. This relationship has been exaggerated by the seemingly smooth economic momentum out of the United States, which printed strong Payroll Revisions as unemployment fell to its lowest levels since March 2008 and a strong gain in average hourly earnings. Fed tightening fears will continue to be a potent catalyst for risk aversion through September. That means a hawkish tone is likely to sink the Kiwi, while a dovish one may offer the currency a lift.