The New Zealand dollar fell against the greenback yesterday despite Statistics New Zealand reporting a better-than-anticipated increase in consumer prices in 3Q 2019. Notably, global dairy prices increased slightly in the auction conducted on Tuesday.
The main reason for the lack of support for the kiwi dollar was a US congressional bill (democracy) related to the protests in Hong Kong that sparked concerns of more discord with China. In the past 24 hours, the NZD/USD pair has declined from a high of 0.6318 to a low of 0.6240.
Statistics New Zealand reported a 0.7% q-o-q increase in consumer prices in 3Q 2019, compared with a 0.6% increase in the prior quarter. Economists did not anticipate any change in a consumer price increase.
Housing and household utilities advanced 1.2% on a q-o-q basis, aided by higher prices for property rates and associated services (up 4.9%). Likewise, food prices increased 1.3%, mainly due to an increase in the price of poultry, meat, and fish (up 3.4%). On an annualized basis, consumer prices rose 1.5% in 3Q 2019, down from 1.7% in the prior three-month period, but higher than 1.4 percent expected by analysts.
In the global dairy auction conducted on Tuesday, dairy prices, on average, increased 0.5% to $3,330 per ton. In the previous two auctions, dairy prices increased 0.2% and 2%, respectively. The price of whole milk powder was unchanged at $3,133 per ton. However, the price of skimmed milk powder increased 2.4%, while butter slipped 0.4%. The price of cheddar dropped 2.2%.
While the economic data was impressive, the geopolitical developments did not favor a bullish view of the Kiwi dollar. China, which is the largest trading partner of New Zealand, remains in a bitter trade dispute with the US. While some analysts have already called the recent preliminary trade deal between the US and China fictional, the Hong Kong-related bill endorsed by the US House of Representatives has raised concerns among investors.
The legislation is related to pro-democracy protests in Hong Kong. The Hong Kong Human Rights and Democracy Act, approved unanimously, necessitates the US government to contemplate every year whether Hong Kong should be treated as a distinct trading entity from mainland China in connection with political ramifications in the city.
The Act effectively paves the way for the imposition of sanctions against individuals who weaken Hong Kong’s autonomy. China has responded by saying that the law would jeopardize bilateral relations. The Kiwi dollar is expected to remain volatile until the US and China resolve the trade dispute between them.
Technically, the NZD/USD currency pair is declining after facing resistance at 0.6320. The currency pair is also trading below its 50-day moving average. Additionally, the stochastic oscillator is also in the bearish zone. As a result, we can expect the NZD/USD pair to move down further in the days to come.
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