New Zealand Dollar Mixed Against Major Rivals on the Back of Dented Market Confidence
The New Zealand dollar is riding on the renewed anticipation for a steep rate cut by the US Federal Reserve. In the early morning trading hours on Thursday, the kiwi was trading at 66.41 US cents. This is a 0.7% gain from the previous day value.
On Friday, July 5, the US Department of Labor released nonfarm payrolls and the results could not be rosier. Notably, the economy created 224,000 jobs in June against a general feeling that the economy was weakening.
The positive nonfarm payrolls injected a fresh impetus in the growth of the US dollar across the board. Against the New Zealand dollar, the greenback added close to 0.08 US cents in early Wednesday.
Powell testimony points to a possible steep rate cut
But the trajectory of the US dollar against the kiwi performed a 180-degree about-turn after the testimony by the Fed Chair, Jerome Powell, to the US House Financial Services Committee on Wednesday 10, 2019. In the testimony, Powell said the US economy faces strong headwinds from a weak global economic outlook and unresolved tensions in global trade.
As per Powell, the major concerns which convinced the Fed to tighten rates in the last two instances remain strong. Also, the Fed Chair mentioned that the economy faced internal threats in the form of debt-ceiling crisis which could befall the US soon. Further, inflation is tepid and the Fed expects it to remain so for the foreseeable future.
Powell’s comments point to a higher chance of a deep rate cut during the next FOMC meeting in late July. As a matter of fact, the market is back stronger in pricing in a 50 basis point tightening during the meeting. Before the testimony, only 3% of the market thought the chance for such a cut was possible. The majority of the market was largely expecting a 25 basis point cut.
Powell’s testimony has made 31% of the market to expect a deep rate cut before August. Subsequently, bets against the greenback are up, hence the rally of rivals like the kiwi.
Chinese economic data hurting the kiwi
Apparently, the growth of the kiwi against the greenback is solely due to the increased bets against the US dollar. Against the pound sterling, the New Zealand dollar slid by 0.3%. Primarily, the underperformance of the kiwi comes on the back of a jittery market caused by weak Chinese economic indicators.
Notably, the producer price index or PPI for China declined in June by 0.3% month-on-month. Car sales in the country for the same period were down 9.6% marking the twelfth consecutive month which car sales have declined. The consumer price index was up 2.7%. Basically, the implication is that all is not well with the Chinese economy.
Being a major trading partner for New Zealand, kiwi traders have all the reason to get jittery. In addition to the Chinese factor, the New Zealand food price index for June fell beyond expectations, signaling shaky growth during the month. As such, there is a high possibility that the kiwi will remain mixed in the short term.