The New Zealand dollar remained relatively strong during September. It enjoyed various factors and became very interesting for technical traders.
Will this strength continue? It could remain stronger than the Aussie, but isn’t likely to print outstanding performance.
What pushes the kiwi?
- QE3: The move by Big Ben hurt the dollar at first, but then saw a backlash. In the case of the kiwi, this backlash was limited.
- Food prices: While Australia suffers from lower prices of metals, food prices aren’t doing so badly. As an exporter of food (especially dairy products), the US drought has been favorable to the kiwi.
- Strong GDP: New Zealand reported a stronger than expected GDP growth in Q2: 0.6%. Despite the downwards revision of Q1, New Zealand’s economy is doing very well in comparison to other countries.
During October, the RBNZ will make a rate decision. No move is expected on the rate, so the focus will be on the text: the central bank might acknowledge the good situation but isn’t likely to celebrate this. The RBNZ is quite cautious and could point to global uncertainty.
In addition, the RBNZ and the New Zealand economy is sensitive to the high value of the kiwi: at these high and sustained levels, the economy could be hurt and the central bank will likely complain about it.
So, all in all we can expect the upwards move to stall if not reverse during October.
This article is part of the October monthly forex outlook. You can download the full report, including the currency technical outlooks and the relative strength index by joining the newsletter in the form below.
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