Unlike its peer currency, the Aussie, the Kiwi faces the direct consequence of a resumption of trade rhetoric, falling by over 0.50% while AUD appears more robust. Yet the surprising trend disparity of both currency pairs is also explained by the recent release of poor trade data from New Zealand while the recent growth forecast downgrade from Westpac concerning the New Zealand economy also supports the decline. Overall, risk-off sentiment should favor a bearish bias for commodity currencies.
July trade deficit came stronger than expected, pointing to NZD -685 million (consensus: NZD -254 million), with exports rising slightly at NZD 5.03 (prior: NZD 5.01 billion) and imports up NZD 5.71 billion (prior: NZD 4.63 billion), highest since November 2018 due to growing demand for capital goods. Meanwhile, the recent growth cut released by Westpac New Zealand for FY 2019/20 towards 2.10% (prior: 2.30%) and 2.30% (prior: 3%) respectively, pointing to more conservative figures than RBNZ’s 2.70% and a surprising 2.40%, despite the expected upcoming monetary and fiscal stimulus from the coming quarters. In this regard, the RBNZ is expected to maintain its dovish bias after RBNZ Governor Adrian Orr announced a 0.50 percentage point cut of the Cash Rate to an historical low of 1% during the August Monetary Policy Meeting, stating a worsening economic outlook and subdued inflation. Therefore, future measures of the RBNZ are likely to be similar to those of the RBA, consisting of following the Fed’s footsteps, with a possible rate reduction at the policy meeting on 11 November 2019, suggesting that the Kiwi downtrend should continue, as the economic slowdown is also likely to affect the labor market near-term.
Currently trading at 0.6375, NZD/USD is heading along 0.6365 short-term.
By Vincent Mivelaz