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Kiwi correction hopes rest with FED reaction

Kiwi correction hopes rest with FED reaction to stronger economic data.

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

08:40 NZT, Tuesday 8 July 2014

Kiwi correction hopes rest with FED reaction to stronger economic data.
By Garry Dean (Sales Trader, CMC Markets New Zealand)

The Kiwi is proving extremely resilient amidst all of the noise surrounding last Thursday’s positive jobs report in the US, with the currency failing to break support at 0.8700, and opening this morning at 0.8760. Last week’s US Non-Farm Payrolls showed an increase of 288,000 jobs in June, and a subsequent drop in the US unemployment rate to 6.1%, increasing speculation the FED will look to commence hiking rates in the first half of 2015. The two-year US Treasury yield has risen to a nine month high of 0.52%, and in reaction we have seen the US dollar strengthen, with the US Dollar Index trading near two week highs. The FED’s zero interest rate policy has helped fuel the rally in US equity markets, but it’s interesting to note that some retail investors have left the party early, with stock market mutual funds posting net outflows for the first time this year, to the tune of $1.7 bio.

The prospect of a stronger US Dollar going forward is important for a correction lower in the value of the Kiwi, but FED Chair Janet Yellen has shown a reluctance to withdraw monetary stimulus, and has been prepared to look through evidence recently of an uptick in US inflation pressures. Looking past the weather affected slump in US Q1 GDP, economic data in the US has been consistent with a steadily recovering economy, and this gives weigh to recent comments from some FOMC Members who have called for an earlier increase in US interest rates. The minutes of the FED’s 17-18 June meeting will be released on Wednesday night, and will be viewed with interest.

The Kiwi has failed to push above the 0.8794 high posted on 27 June, and this level is again likely to post significant resistance on the week. Key support is seen at 0.8700 and 0.8662 – the low of 25 June. Economic data domestically is light this week with Q2 Business Confidence released Tuesday, and the June Manufacturing Index and REINZ Housing Index due Thursday. QV property data released yesterday showed house prices rising 8.0% in the year to June, and again provided further evidence of the divergence in this sector, with Auckland and Christchurch prices rising while many other regions saw falls. RBNZ Governor Graeme Wheeler is giving an off-the-record speech at a breakfast in Auckland Tuesday, with Deputy Governor McDermott due to speak on Wednesday.


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