Kiwi Dollar Down On Higher-Than-Anticipated Trade Deficit

Kiwi Dollar Down On Higher-Than-Anticipated Trade Deficit
September 19, 2019

 

The New Zealand dollar declined yesterday despite a strong rebound in the price of dairy products in the auction held on Tuesday. Even the sharp drop in crude prices did not aid the Kiwi dollar to maintain ground against the greenback. Higher-than-anticipated current account deficit, FOMC (US Federal Open Market Committee) meeting and fears of possible manufacturing output contraction for the second successive month are the main reasons for the Kiwi dollar’s weakness. From a high of 0.6360, the NZD/USD pair reached a low of 0.6328 in the past 24 hours.

Dairy product prices rose for the second successive time in the past nine Global Dairy Trade (GDT) auctions on Tuesday. The GDT price index increased 2% from the earlier auction conducted two weeks earlier. The average price of dairy products increased to $3,303 per ton, from $3,255 in the auction held on September 3rd, 2019. Overall, 37,345 tons of dairy products were sold, up from 34,410 tons two weeks earlier. Notably, the price of whole milk powder increased 1.9% to $3,133 per ton.

In addition to the rebound in dairy product prices, crude oil prices also fell as Saudi Arabia’s energy minister stated that 50% of the output lost due to the attack on its oil facility has already been restored. The Saturday attack removed 5.70 million barrels per day or 5% of the global crude production from the international market. Prince Abdulaziz bin Salman stated that by the end of September, production output would rise to 11 million barrels per day. Before last week’s attack, Saudi’s production stood at 9.60 million barrels per day.

Despite the increase in dairy product prices and drop in crude oil prices, the Kiwi dollar was unable to gain ground against the greenback.

Firstly, the market was in risk-off mode due to the Fed monetary policy meeting that commenced yesterday. Secondly, Statistics New Zealand reported a current account deficit of NZ$1.11 billion in the June quarter, compared with a surplus of NZ$0.72 billion in the earlier month, in line with economic expectations.

Finally, a Business NZ survey published last week indicated a possible contraction of the Kiwi manufacturing output for a second successive month in August.

The Business NZ manufacturing PMI increased to 48.40 in August, from 48.1 in July. A level below 50 indicates contraction and vice-versa. In July, the Reserve Bank of New Zealand slashed interest rates by 50 basis points after the manufacturing PMI fell below 50. The industries who participated in the survey have mentioned that new orders have declined further in August, to the lowest level in a decade, and even production output fell after remaining positive in July.

Regarding the drop in manufacturing PMI, Syas Elias Haddad, a strategist at Commonwealth Bank of Australia, said, “A reading below 50 implies a contraction in manufacturing output. The components of the manufacturing PMI survey also paint a fairly concerning picture about the state of New Zealand’s manufacturing sector.”

Therefore, weak economic data and global economic uncertainty are expecting the NZD/USD pair to remain weak in the short-term.

The historical price chart indicates that the NZD/USD pair is facing resistance at 0.6345. Additionally, the oscillator of moving average is having a negative reading, while the currency pair is trading below its 50-day moving average. As a result, we can anticipate the currency pair to remain bearish in the short-term.

nzd - technical analysis - 19th Sept 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Ian Maguire

Ian Maguire

Ian is our resident contributor to the latest going ons in the cryptomarket, keeping up to date with the latest icos and coins


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