Kiwi at risk as Ukraine tensions increase

Kiwi at risk as Ukraine tensions increase.

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

Despite the escalation of tensions in Ukraine, the NZ dollar has maintained the gains seen in the post US Payrolls rally, to open at 0.8680. The USD weakened following Friday’s payrolls report, as traders looked through the creation of 288,000 new jobs and focused on the declining participation rate, as more Americans gave up their search for employment. The lack of growth in wages was also a concerning point in the report. This suggests the FED are likely to maintain their stance of lower rates for longer, and with FED Chairman Janet Yellen due to testify on both Wednesday and Thursday, the markets will be watching closely for further guidance. Confirmation of a dovish stance from the FED, with further USD weakness would risk a NZD retest of resistance at 0.8700.

Locally the March quarter unemployment number is due on Wednesday, with a decline from 6.0% to a five-year low of 5.8% expected, and this should occur with an increase in the participation rate. This may also encourage a retest of levels above 0.8700, but in the medium term the NZD continues to look expensive. The NZ TWI continues to remain around 2% above the RBNZ forecast, and with recent evidence of a slowing in the property market and declining commodity prices, the RBNZ must surely be reassessing their OCR rate hike projections. Barfoot & Thompson confirmed their April sales were down 23.6% on a year ago, with the median price falling 5% over the month.

The New Zealand Commodity Price Index fell 5% in NZ Dollar terms to an 8-month low in April – led by large declines in the dairy sector. Tonight sees the result of the latest GlobalDairyTrade auction, and with a 20% fall in prices in the past five auctions the result will be watched closely. Global geopolitical risk is undoubtedly a key factor at present, with the Ukraine situation worsening significantly over the weekend. Markets remain nervous of a continued escalation in tensions there, with risk currencies such as the NZ Dollar most at risk should investors’ appetite for safe havens increase.

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