Global Themes

NZD

Turning point for the Kiwi?

Global trade and growth concerns halt NZD’s momentum.

The New Zealand Dollar has seen a sharp reversal from 6 month highs in the last few days, pressured by fresh concerns about future global growth and fears of an inverted yield curve in the US, typically a telltale sign of a looming recession. If you think this sounds strange given the euphoric buoyancy of a week ago then you’re not alone. But the reality is the stunning 8.5% rally in the Kiwi over the past couple of months was probably a little overdone. The US are still likely to raise interest rates at least a couple of times in the next 12 months, the US-China trade wars aren’t resolved at all, and despite significant outperformance on domestic data we remain very cautious about a repeat when the next round of GDP, inflation and employment numbers are released.

Recent weak data across the ditch hasn’t helped either, while the global stock sell down has hurt the Kiwi, in particular NZD/JPY, now 2% off recent highs. We feel there is still a chance for NZD/USD to hit 0.70 pre-Christmas but we wouldn’t be betting the house on it.

US trade deficit hits 10 year high

Are the “tariff man’s” tactics really working?

The US trade deficit hit a 10 year high in November with soybean exports significantly dropping, and the import of consumer goods surging ahead of the holiday sales season. The widening gap suggests that President Trump’s war on balancing trade negotiations is in actual fact having little impact in fixing America’s trade imbalance, although we think it more likely he takes the number as evidence of needing to up his protectionist outlook rather than review it. Staying in the US and private sector job growth also slowed in November, adding 179K jobs last month versus a downwardly revised 225K increase in October. The release did little to change the perception of those who foresee a recession coming in the US.

Trade balance data out of Australia and Canada were also big misses in the last 24 hours and NZD/AUD hit 18 month and 6 month highs respectively in overnight markets, making for attractive long term buys today.

US jobs front and centre

Expectation for 200K jobs, 0.3% wage growth

November employment data from the US takes centre stage tonight, with 200K jobs expected to be added, and perhaps equally important, wage growth forecast to uptick by 0.3%.

We think the Federal Reserve will be watching wage growth data very closely ahead of their last meeting for 2018 in two weeks. An undershoot could push Kiwi back higher, so import orders around 0.69 could save you some money while you take advantage of what looks like being the first decent weekend of weather across the country in some time.

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