The stronger, Trump-inspired, reflationary outlook and recent Federal Reserve projections of three increases of 0.25% to US base interest rates, has redrawn the interest rate map for investors who might now be more attracted to the US Dollar rather than the New Zealand Dollar (Kiwi), given its higher liquidity.
As such the Kiwi is losing its status as the uber-carry currency of choice and this may lead to a steady depreciation over time - especially if data from the US improves the chances of US interest rates playing catch-up.
The loss of interest rate advantage does not just apply to the USD/NZD complex, however, but also against other currencies such as the Pound, which is showing the Kiwi equally vulnerable as the new rflationary era dawns.
GBP/NZD has risen to the top of a box-like, sideways, consolidation range after the New Zealand Dollar (NZD) weakened on a combination of negative economic news and outflows to the USD.
The short-term trend is constructive and therefore likely to continue in the absence of any majorly bearish signs.
A break above the top of the range at 1.8003 would confirm a move up to the next resistance level at 1.8100.
A break above 1.8150 would then signal a continuation to 1.8300, a target calculated by extrapolating the box consolidation a Fibonacci ratio of 61.8% higher.
The MACD is the only negative on the chart as it is looking weak compared to price action, but alone that is not enough of a sign to signal a sell-off.
Carry King NZD Losses its Lustre for Investors
The story for NZD like all high yielders is that of outflows to the USD.
Expectations of higher interest rates offered in the US – especially after the Fed members indicated they would be raising interest rates three times in 2017 – have drawn investors lake fireflies to a lantern.
A traditional favourite for investors when yields were low all over the globe was NZD as it offered a relatively high return of 1.75%, but this seems less generous now.
“All three of the commodity currencies traded sharply lower against the U.S. dollar on Friday, extending a week of consistent losses.
“The New Zealand dollar was hit the hardest but the Australian and Canadian dollars also reported sizeable losses.
“The only country with any meaningful data on the calendar was Australia – the country’s employment report beat expectations but the positive impact of the data was quickly offset by U.S. dollar strength.
“New Zealand reported slower manufacturing activity and there were no major releases from Canada,” said BK Asset Management’s Kathy Lien in her week ahead.
Data for the New Zealand Dollar
There is no tier 1 data for the New Zealand Dollar but there is a significant amount of tier two data.
On the evening of Sunday, December 17, Westpac Consumer Sentiment for Q4 is released at 21.00, along with Building Consents, month-on-month in October.
ANZ Business Confidence for December is released on Monday at 00.00.
On Tuesday, December 20 the Trade Balance is released at 21.45.
Also on Tuesday, at 12.00 (GMT) the Global Dairy Auction will fix current dairy prices, which if higher than previously could have a beneficial impact on the New Zealand Dollar.
On Wednesday, December 21 the Current Account balance in Q3 and GDP in the same quarter is released at 21.45.
Data in the week ahead for the Pound
The main release for the Pound is third quarter GDP, on Friday, December 23, which is forecast to show a 2.3% rise year-on-year and a 0.5% rise quarter-on-quarter in Q3.