What in the forex world is happening to the Kiwi?! NZD/USD has plummeted by roughly 300 pips in the past week and looks ready to dive deeper. Here are some reasons why the Kiwi could fall further.
1. Jawboning from RBNZ Governor Wheeler & Prime Minister Key
Last week, RBNZ Governor Graeme Wheeler’s testimony triggered a massive selloff for the Kiwi, as the central bank head spoke of welcoming moves to a more sustainable exchange rate. He reiterated that the current Kiwi trading levels are unjustified and unsustainable, hinting that the latter might be a factor that could push the RBNZ to intervene.
Earlier today, Prime Minister John Key expressed support for potential currency intervention when he pointed out that the fair value of NZD/USD should be at .6500. Since the pair is currently trading at more than a thousand pips above that level, Key mentioned that it would be logical for the RBNZ to step in the currency market.
2. Another secret intervention?
Fresh off the press is the RBNZ’s report on foreign currency assets and liabilities, which revealed that the central bank actually intervened in the forex market last month. No wonder NZD/USD suddenly dropped by more than a hundred pips in today’s Asian session!
Data showed that the RBNZ sold 521 million NZD in August, its highest net sale since July 2007. While Prime Minister Key also claimed that he didn’t know if Governor Wheeler and his men were already intervening, the RBNZ’s secret forex intervention last year suggests that they probably pulled the same stunt again without telling the markets. Very sneaky, huh?
3. Declining Global Dairy Trade price index
Another factor that might drag the Kiwi down is the upcoming release of the Global Dairy Trade (GDT) price index, which shows the change in dairy prices based on the weighted average of 9 dairy products sold in New Zealand’s dairy auction. This is seen as a leading indicator of commodity price inflation and the country’s trade balance.
This release has drawn a lot of attention in the past few months, as declining dairy prices have started to weigh on New Zealand’s economic performance. Apart from weighing on export demand and revenues, lower dairy prices also result in a reduction of milk payouts to farmers and suppliers, which could hurt spending and investment in the sector later on.
The next release is scheduled on Thursday, with another negative reading likely to push the Kiwi lower. While the GDT price index has stayed flat in the previous auction, it wouldn’t be surprising to see the downtrend resume, as readings have been mostly negative since February.
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