The kiwi was battered in the overnight sessions by a drop in the GDT Price Index, which showed that dairy prices have fallen 8.8% since the beginning of the month. This was especially disappointing for kiwi traders as it ended a run of six straight increases in the index, thereby partially removing a key fundamental support for the NZ dollar. The kiwi still has the advantage of being backed by a non-dovish central bank but the commodity currency is very sensitive to movements in dairy prices.
The next big thing for the kiwi is the release of Q4 GDP numbers at 2145GMT on Thursday. According to Bloomberg, the market is expecting a growth rate of around 0.8% q/q, which is slightly less than the prior quarter’s 1.0% jump but is the same as the RBNZ’s latest forecast from its most recent MPS. The NZ economy, backed by its very strong labour market, is the standout advanced economy and we expect this to show in the data. However, economic data from Q4 wasn’t overly impressive and this may have put a damper on growth.
Meanwhile, the Australian dollar seems to have completely brushed aside the RBA’s dovish minutes from its policy meeting earlier this month. The minutes showed us that members considered loosening monetary further this month, but it was decided that more data was needed and it would take some time for the economy to respond to an earlier cut in the OCR. Despite the fact that the RBA decided to remain on the sidelines this time around, it is expected to lob another 25bps on the OCR in coming months.
Nonetheless, there may be some time before then for an AUDNZD retracement. The most recent sell-off in the kiwi saw AUDNZD bounce off trend line support, confirming a short-term upward trend (see chart). The path of least resistance for this pair seems to higher in the near-term, albeit only just. Accordingly, we may see AUDNZD rally to interim channel resistance, a break of which may spur a rally to the top of its trading channel.