Kiwi dollar backed by dairy, poultry & RBNZ
City Index February 20, 2014 10:00 PM
<p>Three weeks remain until the next interest rate decision of the Reserve Bank of New Zealand, which is widely expected to produce a 25-bp hike […]</p>
Three weeks remain until the next interest rate decision of the Reserve Bank of New Zealand, which is widely expected to produce a 25-bp hike to 0.75%, the first tightening since June 2010. Will the kiwi get a fresh boost or is any action priced in?
The Bank left rates unchanged last month, disappointing some market participants who had expected the central bank to follow on its hawkish remarks in December. The emerging market volatility prevailing at the time may have been a reason for the RBNZ to stand pat, but even the Fed’s decision to taper earlier that day did not encourage the RBNZ to take action. The kiwi fell 1.5% to 0.8050s before resuming a climb of more than 4% to 0.8393.
Last month, RBNZ governor Wheeler said late last month that bank will begin adjusting lending rates to “more normal levels” soon. The Cash rate has remained unchanged at 2.50% for 3 years, the longest period of no change in rates. The fundamentals continue to improve unambiguously.
Confidence at 7-year highs
Consumer confidence slipped 2.1% in February after rising 4.9% the prior month to hit the highest in 7 years. Details of the survey indicate expectations for prices to grow 3.5% annually in the next two years, up from 3.3% in the January survey. House price expectations slipped to 4% from 4.2% in January.
On the jobs front, New Zealand’s unemployment rate is at a 4–year low of 6%, employment growth stood at 1.1% in Q4, just below the 4-year high of 1.2% attained in Q3.
Milk, meat & poultry
On the upside, meat product input prices rose 1.9%, owing to higher prices of sheep and lamb. This has lifted the prices index for export logs 4.3%, or 23% for all of 2013, the highest in 3 years.
Meanwhile, exports of milk powder and butter, New Zealand’s biggest export, soared to NZ 1.9 bln, up 12% in December, 13% in November and 66% in October.
These figures offset this week’s release of Q4 PPI, which showed input prices falling 0.7% q/q from 2.2% while PPI output fell 0.4% from 2.4%. The decline was attributed to falling electricity and gas prices typical of lower summer demand. Demand for energy has been tepid in December each year since 2006.
Right shoulder & moving average confluence
Apart from Kiwi’s exceptional feature of being the only major currency whose central bank is set to raise rates, the buying-on-the dips appears to be a constant positive force in each bout of selloff emerging from hawkish Fed rhetoric, emerging market woes or fresh doubts from China. These dynamics have manifested themselves in the wide price consolidation of the past 5 months, which are part of the shoulder in the reverse Head-&-Shoulder formation. The extended shoulder appears to be supported by the confluence of 55 and 100 WMAs. A run-up towards 0.8380-0.8420 remains in the cards, and if the Fed does taper on March 19, then any resulting pullback in NZD would likely draw another fresh buying on the dips ahead of the RBNZ one week later.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.