Global Themes


Relief rally sustains momentum

Kiwi nudges higher, eyes 0.69 handle

The New Zealand Dollar nudged slightly higher overnight, aided by a weakening Greenback and higher stock market indices. Despite another strong US jobs report on Friday, a rise in the headline unemployment rate and a weaker than expected wage inflation print have led markets to rethink a fourth Fed rate hike this year. Chances of a third hike in September rate remain high at 77% according to bond futures, but the possibility of a December increase has now been pared back to a 50/50 call, leaving the US Dollar on the backfoot in the near term. Combine that with an unexpectedly quiet beginning to the US tariffs on China and risk instruments have seen a healthy bounce back in the last few days.

NZD/JPY was the major benefactor overnight, to the tune of half a percent, while NZD/USD nudged marginally up. A break higher could bring orders at 0.69 into play.

Roger J Kerr predicts a return to 0.70
Famed local FX commentator sees rebound continuing higher

Renowned local independent commentator Roger J Kerr had encouraging news for importers overnight, predicting a short term return to the 0.70 handle. Citing similar historical rallies in the Kiwi when the number of speculative net short sellers of NZD in the futures markets has approached similar levels, he suggests these traders will become profit taking buyers in the coming weeks, just awaiting a catalyst forcing them to act. He suggests next week’s inflation number could be that trigger, with previous RBNZ forecasts being based on oil at much lower prices than it has been. He also cites a return to 0.70 as being more tightly correlated to a long term comparison with current dairy prices.

Rising US interest rates, weaker Chinese data, trade wars, an RBNZ on hold and softer local data all suggest a lower Kiwi in the medium term, but we wouldn’t discount a short term move back close to 0.70 either, making market orders a great play to lock away the rest of the financial year’s exposure should we see that level.

Chinese inflation due today
Australian business confidence, UK GDP released

Chinese inflation headlines today and a stronger print than the 1.9% annualised expectation can have NZD/USD pushing higher, although NZD/AUD might be susceptible in that scenario.

Australian business confidence data should also move the cross rate, seemingly back on a downtrend towards 0.90, while Pound sellers will be hoping a strong UK GDP print might finally be the catalyst for a test of the key psychological 0.50 level.

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