Trade war remains main driver
The ongoing trade war is creating a lot of confusion on the FX market, as market participants struggle to guess out it would play out. So far, the US dollar has largely benefited from this uncertainty and extended gains against most of its peers, with the exception of safe haven currencies. Since mid-June, the speculators are long USD again. This is the first time since June last year. Traders are heavily against the Kiwie, the Aussie and the Swissie. However, regarding the latter, speculators started to reduce their short CHF exposure over the last few weeks amid escalating trade tensions.
Recently, Trump has been facing setbacks in the form of retaliatory measures and relocation announcement of certain US companies, which would suffer from upcoming tariffs. Against such a backdrop, it is reasonable to expect that Donald Trump would ease its stance and negotiate with its trade partners. Meanwhile, the market remains in risk-off mode by dumping currencies of export-oriented countries and favouring the Swissie and the yen. We see no reason for this trend to reverse anytime soon, at least as long as the uncertainty persists.
New Zealand: strong trade surplus
Numerous countries would envy New Zealand’s commercial situation. Despite trade tensions that globally create disorder in business transactions, it seems that the New Zealand economy continues to surprise, with a trade balance surplus for the month of May written at NZD 294.28 million (USD 206 million), its highest rate since December 2017.
With exports rising by NZD 454.30 million and imports maintained at a constant pace (NZD 5.12 billion), it appears that the New Zealand economy is more and more solicited by its commercial partners which require to find alternatives for their existing domestic demand in consumption goods. Indeed, increasing by 27%, 17%, and 0.5% for China, EU and Japan respectively due to a stronger demand in meat, lamb, fruit and aluminum, it seems that the New Zealand economy currently lies in a rather comfortable commercial situation from now, although business confidence continues to decline in June for the 4th month in a row according to the survey.
Expected to maintain its reference rate unchanged at 1.75% due to continued weakness in economic growth and inflation, the Bank of New Zealand will most probably maintain its dovish stance in today’s monetary policy meeting, a rather worrying situation for the kiwi. Currently trading at 0.6823, its lowest level since July 2017 (-4% year-to-date), the NZD/USD is expected to decline further, as a stronger greenback coupled with widening interest differentials will strengthen the downward tendency. The pair is expected to head along 0.6810 in the short-term.
