Kiwi skips a heartbeat as report echoes stern warning

Kiwi skips a heartbeat as Financial Stability Report echoes stern warning

By Andrew May (Sales Trader, CMC Markets New Zealand)

It’s been a fairly tumultuous week for the Kiwi dollar in which ‘choppy trading’ has affected broad risk appetite with trans-Atlantic equity markets relatively subdued barley clinging onto record highs amidst a resurgent ‘Greenback-comeback’. We open lower today US 82.08c as the fallout of falling global material commodity prices continue to retract.

Offshore indicators that began with an ECB rate cut and a somewhat perplexing positive US jobs number late last week have nosedived the overall trend of the New Zealand dollar as of late. And accompanying commentary from Fed official Dennis Lockhart suggesting an early taper by possibly next month, has taken additional wind from the sails of the Kiwi. The NZD could potentially fall under additional selling pressure today as the Bi-Annual Financial Stability Report caused further concerns locally for the Reserve Bank of New Zealand.

Precautionary shots fired across the bow today from RBNZ Governor Graeme Wheeler have shown the economy is still susceptible to global financial shock waves, that the level of external indebtedness is too high and that systemic risk caused through rising house price inflation regardless of recently implemented ‘Loan-to-Value-Ratios’ (LVR) still pose significant headwinds for localised growth. The New Zealand dollar fell half a cent testing US 81.70 taking with it all NZD crosses in its wake before retracing back to US 82c.

The heightened demand for Greenback appeal could well continue this week causing the NZDUSD to retest US 81.80 as incoming Fed Chairwoman Janet Yellen’s confirmation hearing in front of the U.S. Senate banking committee is expected to gather considerable attention from markets. Investors will look for further clues on her monetary policy bias.

And as another weekend draws near, traders once again may be left with making a fairly conservative call taking into account dampened broad risk appetite as opposed to defensively held USD on the expectation of QE ‘tapering’ coming sooner rather than later.

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