Kiwi at risk ahead of CPI and Dairy auction

08:08 AEST, Tuesday 15 April 2014

Kiwi at risk ahead of CPI and Dairy auction.

By Garry Dean (Sales Trader, CMC Markets New Zealand)

Wednesday poses as the key day for the NZD this week, with the release of an important data dump from China, the latest Online Dairy auction results, and Q1 CPI in New Zealand. Local traders have priced-in a 0.5% CPI increase for the March quarter, taking the annualised rate to 1.7%. Last fortnight’s Global dairy auction saw prices slump 8.9%, with the currency losing close to two cents. A combined drop of 18% in the past four auctions will significantly increase the focus on tonight’s auction result. The medium-term picture suggests the NZD remains at elevated levels around 0.8700, with daily technical indicators continuing to highlight bearish divergencies from recent traded highs.

Last week’s strong business confidence and manufacturing numbers were supportive of the currency, but it was the release of dovish FOMC minutes that took the NZD to a 3-year high of 0.8746. The minutes suggested US interest rates will remain lower for longer, with traders forced to unwind bets on a stronger USD. Risk aversion on the back of a broad selloff in global equities has capped the NZD however, and news of deadly clashes overnight between pro-Russian separatists and government forces in east Ukraine will limit traders appetite for risk further.

Chinese data on Wednesday includes industrial production and Q1 GDP, and this could have a big impact on commodity currencies. Last week’s Chinese trade numbers were terrible, showing large falls in both exports and imports, and this doesn’t bode well for the GDP read. A drop below the targeted 7.5% is expected, but the potential for additional stimulus measures from the PBOC has reduced somewhat following the release of higher consumer prices last week. This has the potential to impact the NZD, and more particularly the AUD, going forward.

ENDS

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