Commodity correction weighs on Kiwi

Commodity correction weighs on Kiwi

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

The NZD has managed to claw back around half of the losses seen following last week’s commodity inspired sell-off. The 8.9% fall in last week’s GlobalDairyTrade auction took the combined 6-week fall to a staggering 18%, and fuelled a 2% correction in the NZD over two days. While the NZD has managed to regain 0.8600 overnight, the sharp declines of last week have highlighted the risk of our growing dependence on dairy, and suggests our Terms of Trade are likely to experience a reasonable correction from the recent 40-year high peak.

The market is reassessing the inflationary impact of falling dairy prices and a high currency, and suggesting the RBNZ may need to raise the OCR by less in the next two years, than the 200 pts it indicated in the recent MPS. Chinese growth remains a key factor for both the NZD and AUD, and last week’s ‘mini stimulus’ provided a modest boost. China’s trade numbers on Thursday will be watched closely, but the real focus will be on their GDP release next week, as a gauge to whether additional stimulus measures will be considered. On the topic of stimulus, reports out overnight are suggesting the ECB is modelling the effect of a potential one trillion Euro stimulus package via the bond market to combat deflation.

NZ Business confidence has been at 20-year highs, and today’s NZIER Quarterly Business Confidence number should provide some further support. Technically solid resistance is seen around 0.8640, and this should contain any upside on the day. A larger reversal formation is forming on the daily charts, with major neckline support seen at the 0.8520 level. A breach of this support level opens up potential for a decline below 0.8350.

Ends

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