Kiwi Bulls Look to GDP Data as Lead Over G-10 Peers Narrows

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The kiwi is looking for a second wind from a rebound in New Zealand’s growth figures as its lead over Group-of-10 peers starts to flag.

New Zealand’s currency has gained 7% versus the greenback since the beginning of October, as investors lowered their expectations for the central bank to adopt negative interest rates. Markets now see only a 30% chance of the official cash rate hitting zero next year, having fully priced a drop to -0.25% just six weeks earlier.

The rally that took the kiwi to its strongest level in more than two-and-a-half years Friday is now in danger of petering out. Slow stochastics, an indicator of momentum, are flashing overbought signals. While it’s ahead of major currencies so far this quarter, it’s slipped to the middle of the pack month-to-date.

This latest push above 0.71 U.S. cents “is largely a function of ongoing strengthening in commodity prices and associated U.S. dollar weakness, but could get an added kicker from third-quarter GDP,” says Ray Attrill, head of currency strategy at National Australia Bank Ltd. in Sydney.

The adrenalin boost the kiwi needs could come as soon as Thursday if third-quarter growth data confirm the economy has snapped back since its lockdown. Across the Tasman Sea, numbers showing Australiabounded out of recession last quarter helped propel the Aussie to its strongest level this year.

Attrill’s colleagues at Bank of New Zealand forecast growth of 14%, above the 12.9% consensus from a Bloomberg survey of economists. That compares with a 12.2% contraction over the previous three months.

The kiwi could also benefit from investors trimming bets on central bank stimulus even further, particularly as the government sharpens its focus on how the Reserve Bank of New Zealand’s policy may be stoking the property market. Both sides are openlydebating whether to add house prices to the central bank’sremit, with the latest data showing homesales soaring 29.6% year-over-year.

New Zealand Housing Frenzy Exposes Perils of Ultra-Low Rates

The positive tone on the economy could be set earlier in the week, if consumer confidence recovers from its tumble to a12-year low in the third quarter.

The kiwi has initial support around 0.70, with an additional level at 0.68. A handful of solid reports on the economy this week should mean neither of these areas needs to be tested.

Below are the key Asian economic data and events due this week:

  • Monday, Dec. 14: Japan 4Q Tankan survey and industrial production, New Zealand performance services index, India CPI and wholesale prices
  • Tuesday, Dec. 15: RBA minutes and RBA’s Kearns speaks, New Zealand 4Q Westpac consumer confidence, China industrial production, retail sales and fixed assets ex-rural, Indonesia trade balance, Philippine overseas remittances, India trade balance
  • Wednesday, Dec. 16: New Zealand 3Q BoP current account balance, Japan trade balance and PMIs
  • Thursday, Dec. 17: Australian employment data, New Zealand 3Q GDP, Bank Indonesia policy decision, BSP policy decision, Singapore non-oil domestic exports
  • Friday, Dec. 18: New Zealand consumer, business confidence and trade balance, Japan CPI and BOJ policy decision

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