Currency Market Analysis

Global Themes

NZD

Strong US inflation repels Kiwi surge

1.8% annualized print may signal a reversal in Greenback's recent decline.

The New Zealand Dollar showed the first possible signs of a reversal pattern in 2018 on Friday night, as US inflation for December exceeded expectations and helped push the Greenback higher. The monthly print of 0.3% for core inflation (ex food and energy), translating to a 1.8% annualized increase, now squarely puts a March rate hike from the Federal Reserve starkly in focus.

The Kiwi was the hardest hit by the stronger US inflation print, opening this morning in the low 0.72s v USD, but showed a significant reversal against both GBP and EUR, both down around 1% from Friday's open.

Global dairy trade key to Kiwi's fate this week

Can the recent commodity price lift continue for dairy prices?

Tuesday night's Global Dairy Trade auction results could define the short term direction for the Kiwi. After such a stellar post-Christmas run for NZD/USD, built on the back of a 2.2% increase in dairy prices in the January 2 auction, this week's release might need to see a similar price rise to sustain the Kiwi's rally.

Other data due for release locally this week are a NZIER Business Confidence survey (Tuesday), and fourth quarter manufacturing data (Thursday), both of which should give us further evidence of how the NZ economy is tracking under the new government.

Chinese GDP, Aussie employment headline

NZD/AUD could offer exporters opportunity this week.

We have been well entrenched in the 0.91s on NZD/AUD for some time, but this week might define a breakout on this cross rate, given we have both Chinese GDP and Aussie employment due. With the AUD often trading as a quasi-Chinese trade, strong data here has the potential to give exporters a shot at the key 0.90 level leading into month end. Orders around 4.70 for CNH buyers may also prove fruitful.