Summary:

  • NZ dollar trades lower following a disappointing release on trade balance
  • NZ finance minister seems to be not fretted about kiwi’s strength
  • Chinese equities run out of steam ahead of the Powell’s testimony

Early trading on Tuesday is bringing slight weakness of the New Zealand dollar in the aftermath of the disappointing trade data for January. At the same time, moves across the remaining major currencies are subdued with the greenback being traded slightly below its flat line. The US bond market has setted down as well after a noticeable increase in yields yesterday afternoon as the US 10Y yield climbed from 2.83% to 2.87%. It’s trading at 2.85% in early trading ahead of the new Federal Reserve chairman’s testimony.

link do file download linkNZ trade balance showed an unexpected deficit in the first month of 2017. Source: Bloomberg

In terms of macroeconomic releases there was a miss in New Zealand’s trade as it showed an unexpected deficit at 566 million NZD while the market consensus had pointed to a balanced reading, the prior was a 640 million NZD surplus. The major culprit for a miss in January were exports as they lowered from 5.49 billion NZD to as low as 4.31 billion NZD coming in vastly below expectations. As you can see at the chart above a deficit exceeding 500 million NZD in January was not the case in the prior years therefore the data might be viewed as a warning sign. This is especially true when we take into account still buoyant global growth which should be reflected in higher exports.

link do file download linkThe NZDUSD is trading slightly lower in the morning and the base scenario still assumes a continued decline toward a 0.72 handle. Notice that the pair is trapped in range trading and until it breaks out of it moves may be limited. Source: xStation5

Although, the NZ dollar is losing some momentum at the time of writing it’s has been doing quite well lately. Nevertheless, relative strength of the currency has yet to concern NZ finance minister Robertson. He said that the NZ dollar is well regarded by markets and reflects the strong economy. Minister also added that business confidence is expected to improve after a sudden decline in the aftermath of political tailspin.

At the end let us mention equities especially those in China. Despite another successful day on Wall Street (the major indices gained above 1%) the two Chinese benchmarks are running out of steam. The Shanghai Composite is going down 1.3% while the Hang Seng (CHNComp on xStation5) is stumbling as much as 1.6%. Drops could reflect some anxiety regarding the scheduled Powell’s testimony as Asian investors might be uncertain if he expresses some remarks that more hikes are needed in response to an unprecedented fiscal incentive delivered by the Congress. On top of that, any comments with regard to neutral rate seems to deserve particular attention.

link do file download linkThe Hang Seng (CHNComp) is drawing an ominous candlestick at a daily time frame which could lead to an extended pullback. If so, a decrease toward a long-term ascending trend line has to be taken into consideration. Source: xStation5