The latest batch of data releases have been supporting the kiwi as the Reserve Bank of New Zealand decision to stay still while maintaining a dovish bias is finding broad support. NZD is holding to its gains following the rate decision two weeks ago, with NZD/USD (-4.50% year-to-date) maintained above psychological level of 0.64. Yet mixed market movements are showing first signs of market lull ahead of US Thanksgiving Day holiday as well as Black Friday thereafter after both the Nasdaq and the S&P500 have broken record highs again. The dull phone call between Chinese Vice Premier Liu He and US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, although confirming that both parties should remain in contact about a phase one agreement, should keep markets on hold as a risk of escalation is reducing. Tariffs on $160 billion worth of Chinese goods due on 15 December 2019 is still in the pipeline, albeit an extension of the deadline is likely. In this context, NZD is expected to trade sideways as the RBNZ view that risks to the economy are “titled to the downside” has yet to be confirmed.
The uptick in manufacturing PMI in October to 52.6 (prior: 48.4), back to expansion territory for the first time since June 2019, supported by improving activities in both new orders and production followed by 3Q retail sales rising at 1.60% (prior: 0.20%), largely above forecasts of 0.50%, seems to confirm a recovery in the New Zealand economy. The question of whether the economy will close the year on a positive note should depend strongly on the positions of both the US and China.
By Vincent Mivelaz