Inflation growth and weakness of the greenback: why the New Zealand dollar rises in price
The New Zealand dollar continues to gradually recover its position, taking advantage of the weakness of its American namesake. Pushing away from the minimum of this year, which are located at the base of the 64th figure, the pair NZD / USD today crept to the borders of 0.66. However, the bulls have not decided yet to storm this level. However, the growth potential remains, especially if the US dollar does not receive support in the near future from the Fed or the external fundamental background.
The formal reason for the current northern impulse “kiwi” was the data on the growth of inflation in New Zealand. Consumer price index came out better than expected, both in quarterly and year-on-year terms. The last time at such rates, inflation rose a year ago. The structure of inflation indicators suggests that such dynamics was mainly due to the growth of the oil market. The cost of gasoline is increasing at a record pace. In September, the growth rates updated seven-year highs. The combination of the rising market of “black gold” and the devaluation of the national currency have done their job, especially against the background of the introduction of a fuel tax in some regions of New Zealand.
To be fair, it should be noted that, without taking into account, prices for energy and fuel, the consumer price index also showed positive dynamics (+ 0.7% q / q and + 1.2% y / y), this time, due to the rise in prices for imported goods. Since April of this year, the New Zealand dollar has fallen by almost a thousand points against the US dollar, so the cost of imported goods (especially household and digital electrical equipment) has increased in many ways. The combination of these reasons provoked the growth of the key indicator of inflation, and this factor, in turn, supported the corrective growth of NZD / USD.
I recall that less than a month ago, data on the growth of the country’s GDP (for the second quarter) were published, which also showed a positive trend. Moreover, this report suggests that the New Zealand economy during this period grew at the strongest pace in the last two years. Taking into account seasonal fluctuations in GDP, in quarterly terms, it increased by one percent, while experts expected the figure to be at 0.8% after relatively weak growth of 0.5% in the first quarter. Rather strong growth was recorded in almost all industries. By the way, on an annualized basis, New Zealand’s GDP also exceeded growth expectations.
The dynamics of macroeconomic indicators return to traders the hope of tightening the rhetoric of the Reserve Bank of New Zealand, professing an extremely “dovish” position. Thus, members of the regulator moved the date of a possible rate hike in the second half of 2020, whereas the market had previously focused on the autumn of next year. Such an unexpected turn of events sent NZD / USD to the knockout, and only due to the growth of key indicators and the weakness of the US currency, the pair gradually returns the lost positions.
In my opinion, the New Zealand Central Bank is unlikely to reconsider its intentions in the near future. The next (and last this year) meeting of the RBNZ will be held on November 8, where members of the regulator can note positive trends in the economy, while maintaining a cautious attitude regarding the prospects for monetary policy.
However, before the meeting of the RBNZ, there is still almost a month, so in the near future, the NZD / USD pair will follow the US currency, which in recent days has been showing vague dynamics. Following the weak data on the growth of inflation in the United States yesterday were published as equally weak data on the volume of retail sales. The figures came out in the “red zone”, showing a decline in consumer activity of Americans.
Another bad news is that the US budget deficit again exceeded the forecast values. Expenses jumped seven percent (to 3.88 trillion), significantly exceeding profit. Revenue from corporations decreased by $ 71 billion (compared to the same period last year) and amounted to $ 163 billion. In other words, the negative scenario that was voiced before the adoption of tax reform in the United States seems to come to life. Reducing the tax burden, paired with rising government spending, affects the budget, which demonstrates a logical “gap” between revenues and expenditures.
External fundamental background also does not support the US currency. The trade war between the United States and China temporarily subsided, while the scandal over the disappearance of journalist Jamal Khashoggi is only gaining momentum. Today in the American press appeared insider information that Saudi Arabia can admit that the death of a Saudi journalist occurred “because of an incorrectly conducted interrogation.” The consequences of such a statement are difficult to predict, given the fact that earlier, Trump warned that he was ready to “severely punish” Saudi Arabia if the involvement of the country’s authorities in the incident was proved.
Thus, if the New Zealand dollar received support in the form of strong inflationary dynamics, the US dollar is under pressure from a variety of factors. Starting from the slowdown of inflation indicators and ending with uncertainty in the geopolitical sphere. All this suggests that the pair NZD / USD may soon test the resistance level of 0.6605, which coincides with the lower boundary of the Kumo cloud on the daily chart. If the US currency continues to weaken throughout the market, the “kiwi” will be able to approach the upper boundary of the above cloud, corresponding to a price of 0.6680.