Fundamental Forecast for the Kiwi:Bearish
- New Zealand Dollar Ends The Week Nearly Flat Against a Mixed USD
- Speculative Longs Outweigh Shorts By 20% Vs Previous 18% Showing Speculative Positioning Is Still Convincingly Long-Kiwi, Increasing the Risk if USD Moves Higher in Near-Future
- 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.
Halfway through the month of November, the New Zealand Dollar has retraced much of its October gains. In fact, across the G10, NZD is lower vs. the USD than even the Oil-driven Canadian Dollar and Norwegian Krone. Month-to-date, the New Zealand Dollar is lower by 3.70%. However, the Australian Dollar is the most resilient vs. the USD due to a mid-week AU employment report that moved AU rates substantially. That type of divergence rarely lasts meaning either the NZD will soon strengthen or the AUD weaken vs. the USD. Many investment bank research notes favor the later as a likely December Federal Reserve liftoff looms.
The main domestic data this week came in the form of the Financial Stability Report, which was followed by a Wheeler conference that reinforced the view that RBNZ is on hold for the time being. A holding RBNZ and consistently weak milk auctions continue to put downward pressure on the NZD. Another milk auction next week will be looked to either reverse the trend or confirm the dropping demand for premium milk products. Another underwhelming auction could further encourage traders to sell the NZD as the milk industry’s troubles could influence the RBNZ to move forward with another cut down the road. The dairy industry accounts for roughly 25% of GDP for New Zealand, so the demand and direction of the dairy industry are worth watching if you hold exposure on NZD.
Focus next week will be on Tuesday’s Reserve Bank of New Zealand 2-Year Inflation Expectation, which will be judged vs. the prior reading of 1.94%. Lastly, the trend in other commodities has driven commodity currencies lower (save AUD though that could change), as the post-August bounce in many commodities like Crude, Copper, Gold, Iron Ore, and Milk have failed to retain buyers. If this story picks up steam and markets continue to sell commodities, NZD would likely feel the pinch as well and continue to move lower as it has through November vs. the USD. The Commitment of Traders (CoT) report showed that speculative NZD longs recently outweighed shorts by 20% vs. previous 18%. This positioning data shows that speculative positioning, which is notoriously fickle, is still convincingly long-kiwi, and that increases the risk of a sell-off if USD moves higher in near-future. T.Y.
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