The Kiwi dollar has been one of the worst-performing currencies this year. A decline in the price of dairy products and the surge in energy prices have contributed to its weakness. Additionally, while many key central banks raise rates frequently, the Reserve Bank of New Zealand continues to maintain interest rates at 1.75%, making the NZD a target for short-sellers.
However, the Kiwi dollar may get a short respite against other struggling top tier currencies, such as the Pound, due to positive retail sales data reported earlier today, and an overall weakness in the greenback caused by Trump’s comments against the Fed.
Kiwi receives support from economic data & Trump’s talk against the Fed
On Wednesday, data from Statistics New Zealand showed that retail sales volumes increased by a seasonally adjusted 1.1% in the second quarter, compared with a 0.3% growth in the previous quarter. Economists had expected growth of only 0.4%. Excluding automobile and gas station sales, core retail sales increased 1.4% in the second quarter, beating analysts’ expectations of 0.8% growth. In the previous quarter, core retail sales increased by 0.6%, therefore the growth has been particularly promising in this sector.
In fact, these robust figures suggest that the second-quarter GDP growth would surpass the Reserve Bank of New Zealand’s forecast of 0.5%. So, the chances of a rate cut by the New Zealand Central Bank is considerably reduced.
Commenting on the strong retail sales data and its impact on the interest rate outlook, Mark Smith, senior economist at ASB Bank, said: “Strong retail volumes are consistent with our 0.9 percent…pick for Q2 GDP…the hurdle to a near-term OCR cut by the RBNZ remains high.”
As the currency market now expects the Reserve Bank of New Zealand to avoid lowering interest rates, the Kiwi dollar is receiving a much-needed boost.
Additionally, Trump’s well-publicized dissatisfaction over the Fed’s handling of US interest rates has weakened the greenback. This week, the US President also accused China and the EU of manipulating their currencies. It’s been no secret that Trump wants the US dollar to remain weak, and through these tactics, he is effectively talking the dollar down.
Across the pond, the euro remains weak on Turkish contagion fears, and despite strong economic growth, the Pound continues to struggle amongst heightened concerns of a no-deal Brexit.
Technically, the Pound-New Zealand pair remains extremely weak on the chart. GBPNZD has formed a bearish dragon pattern, which could lead to the pair downwards.
However, indirectly, these developments are supporting the New Zealand dollar’s uptrend against first-world currencies.
In Washington this week, talks will begin among top-level executives from China and the US to resolve trade and intellectual property related issues. The market expects some sort of compromise to be reached, leading to a withdrawal of recent import duties. As a result, risk appetite has increased in the currency market, and whenever this occurs, the Kiwi dollar and the Aussie strengthen. So, a combination of all these factors is expected to keep the New Zealand dollar strong in the short-term.
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.
