NZ Dollar Extends Weakness Extended: But is NZD Weakness Only Temporary?
- Written by: Gary Howes
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The inaction of the RBNZ on interest rates continues to weigh on the New Zealand dollar complex as we head into February.
A look at the foreign exchange rate markets on the 31st of Jan shows the NZ dollar has not recovered from its post-RBNZ sell-off. Also weighing is the negative sentiment amongst investors on global markets.
- The pound sterling to New Zealand dollar exchange rate (GBP/NZD) is 0.54 pct higher at 2.0301.
- The euro to New Zealand dollar exchange rate (EUR/NZD) is 0.57 pct higher at 1.6701.
- The Australian to New Zealand dollar rate (AUD/NZD) is 0.2 pct lower at 1.0752.
- The New Zealand dollar to US dollar exchange rate (NZD/USD) is 0.67 pct lower at 0.8112.
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The New Zealand dollar won't be weak for long
In New Zealand, the inaction of RBNZ on the rates continued weighing on NZD-complex.
Although the Governor Wheeler said that the policy rate will be lifted to “more normal levels” soon, the markets price in a March hike with 96% chance according to implied OIS pricing.
"NZDUSD sees support above the Fibonacci 50.0% level of 0.8118 on Aug 13’ – Oct 13’ rally. As we believe that the NZD weakness is temporary, the weakness in kiwi generates good opportunities to build NZD-long position in the mid run," says a note on the exchange rate from Swissquote Research.
In fact, if the March rate hike happens, the New Zealand will be among the first leading developed economies to start properly tightening by rate action.
Elsewhere, the RBA keeps the dovish bias, the BoJ is expected to add more monetary stimulus by April (to counter the rise in sales tax from 5.0% to 8.0%), the Fed insists on ZIRP as long as the unemployment remains above 6.50% and CPI below 2.50%, while the BoE is willing to defend the forward guidance (now that the inflation is at the 2.0% target).
"Given the global picture, the carry traders should jump back in the game as soon as RBNZ decides to concretize the most expected rate hike. Our target carry pair NZDJPY tests the 61.8% fibo level of 83.116 on Oct 13’ – Jan 14’ rally, we keep watching reversal signs to get positioned," says Swissquote.
Markets negative after a tough week
As mentioned, the NZ dollar will likely remain under pressure considering the poor sentiment on global markets at present.
Following yesterday’s fat-finger-filled trading day, plenty of transactions have been carried out on trading floors around the City this morning, although arguably just as many of these trades have revolved around the first set of Six Nations matches at the weekend as equities.
"It has been a gruelling week for traders, who have seen markets pulled one way and then another, with FOMC tapering and crashing emerging-market currencies playing their parts. As China has started its week-long break to celebrate the start of the year of the horse, we could be set to sail on slightly smoother waters," says Alastair McCaig at IG.
Ahead is another US trading day that will be packed full of corporate figures.
Today it is the turn of Mattel, Mastercard, Chevron, AON and Newmont Mining to headline with their quarterly updates.
Adding to the corporate releases we will also have plenty of US economic data to chew through, with personal spending and income to digest before University of Michigan consumer sentiment arrives later in the day. Ahead of the open, we expect the Dow Jones to start 110 points lower at 15,738.
