NZD/USD is directionless on Thursday. In the European session, NZD/USD is trading at 0.7212, down 0.03% on the day.
China is in the spotlight, as relations with Australia and New Zealand seem to be souring by the day. New Zealand Prime Minister Jacinda Ardern had some stern comments about China this week, saying that the differences between the two countries had become more difficult. New Zealand criticized China for its treatment of the Uyghurs minority, but stopped short of accusing China of genocide, a move which would have likely caused a harsh reaction from Beijing.
China has ratcheted up the silent trade war with Australia, and this has New Zealand very worried as China is New Zealand’s largest trading partner. Prime Minister Arden is likely to tread very carefully with China and ensure that any ruffled feathers in Beijing do not jeopardize the trading relationship between the two countries. Jitters over China sent the Australian briefly lower earlier on Thursday, and the Aussie dragged down the New Zealand dollar for a brief time as well. This highlights the close linkage between the movement of the two currencies.
On Wednesday, RBNZ Deputy Governor Geoff Bascand noted his concern that a decline in house prices could affect the financial system. Basand warned that the central bank was prepared to further tighten lending conditions for housing using LVR requirements or additional tools that we are assessing” as the RBNZ attempts to discourage speculators from further heating up the housing market.
In economic news, the ANZ Business Confidence Index for May jumped to 7.0, up sharply from the previous reading of -2 points. An improving economy has resulted in stronger demand, but factories have been unable to keep pace. The inevitable result will be an increase in inflation, which the RBNZ will be closely monitoring, as it will have to consider a taper of QE if inflation moves substantially higher.
