Long positions in hedge funds and hawkish rate bets mean Kiwi has room to fall
(Bloomberg) – There is a plethora of positive news for the New Zealand dollar. All the more reason for her to be on the verge of weakening.
Long positions in leveraged funds are near a three-year high, as traders anticipate a more than 90% chance of another central bank interest rate hike next month. With all of this great news already in the price, there’s plenty of room for disappointment.
There are a number of possible catalysts that could convince the Reserve Bank of New Zealand to delay its planned interest rate hikes. These include any worsening of the current Covid epidemic or a slowdown in the pace of job creation – two factors he pointed to as possible reasons for delaying the tightening.
At the same time, there is a big underlying negative. The Federal Reserve has reaffirmed its commitment to reduce bond purchases as it moves towards a policy of normalization, which will create a consistent offer for the US dollar.
“We see limited upside potential for the NZD / USD because interest rate markets fully integrate a cycle of RBNZ rate hikes, while we still see the opportunity for US markets to adjust their expectations. on rising Fed Funds rates, “said Kim Mundy, currency strategist. at the Commonwealth Bank of Australia in Sydney.
Further, “New Zealand’s extended Covid-19 restrictions may weigh on the NZD if they cause interest rate markets to reassess the RBNZ rate hike outlook,” he said.
Overnight index swap markets expect a 92% chance of a 25 basis point rate hike at the next RBNZ meeting on November 24, and an 86% chance of a further rise at its next meeting in February. The central bank is used to doing the unexpected. It raised its benchmark for the first time in seven years on October 6, but only after disappointing hawks expected a decision in August.
Technical analysis also identifies a challenge. As the Kiwi-US dollar exchange rate rose above 0.70 last week from the September low of 0.6860, it is now approaching resistance at last month’s high of 0, 7170. Failure to pass this level can cause it to drop again.
The kiwi faces a more immediate threat in the form of expected inflation figures on Monday. Economists polled by Bloomberg predict that consumer prices likely accelerated at an annual rate of 4.2% in the last quarter. If the reading is lower than that, then more doubts may begin to creep in as to whether a November rate hike is really a done deal.
Here are the main Asian economic data expected this week:
- Monday October 18: New Zealand third quarter CPI, China’s third quarter GDP, retail sales, industrial production and non-rural fixed assets, according to RBA Heath, Singapore’s domestic non-oil exports
- Tuesday October 19: RBA minutes, Bank Indonesia rate decision
- Wednesday October 20: Prime rate on 1 and 5 year loans from China, trade balance from Japan, export orders from Taiwan
- Thursday October 21: Australian business confidence in Q3, South Korea exports / imports in 20 days, credit card spending in New Zealand,
- Friday October 22: RBA Lowe speaks, Japan CPI and PMI, Malaysia CPI, Thailand customs trade balance
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