New Zealand Dollar Awaits Key US PCE Data, Powell Testimony

New Zealand Dollar Fundamental Forecast: Neutral

Talking Points:

New Zealand Dollar declined last week as a hawkish FOMC undermined its yield appeal

RBNZ’s incoming governor said he expects to sign proposals to broaden their mandate

Attention turns to external risk including US PCE and Fed’s Jerome Powell testimony

The New Zealand Dollar focused on external news this past week, spending most of its time declining against the US Dollar. This was likely due to a lack of key economic event risks from its home country. At most, you had better-than-expected fourth quarter retail sales. But the data failed to spark a meaningful positive reaction in the currency. However, there was an important development at the central bank.

RBNZ’s incoming governor Adrian Orr said that he expects to sign the proposals to broaden the central bank’s mandate shortly before taking office on March 27th. These include making the Reserve Bank of New Zealand target full employment in addition to stabilizing prices, similar to the Fed’s dual mandate. Mr. Orr declined to comment on current monetary policy as he wasn’t involved “at this point”.

On the external front, Wednesday’s hawkish FOMC minutes increased Fed rate hike expectations. As mentioned before, this saps the appeal of the New Zealand Dollar as the markets face the reality that its US counterpart is
inching closer to having the highest yield
in the majors’ spectrum. Firming US lending rate fears also took its toll on Wall Street as the S&P 500 fell, hurting the sentiment-linked Kiwi Dollar further.

Looking ahead, we will probably have more of the same fundamental themes play out next week. Mainly, attention is likely to be on external data and stock markets. At home, New Zealand’s trade balance figures will be released on Monday, followed by business and then consumer confidence on the following days.