Fundamental analysis: NZD up on government surplus

Fundamental analysis: NZD up on government surplus

The New Zealand dollar has made gains against most major currencies so far today. These came as the country’s government reported a budget surplus of around NZ$7.5 billion this morning.

The Kiwi dollar moved back above 63 US cents in early trading and has held there this morning GMT. NZDJPY also moved up to week highs above ¥67.80, and EURNZD was similar below NZ$1.74. In a more dramatic movement, the pound lost nearly 1% against the Kiwi dollar to trade at 1.935, a month low.

‘Robertson’s surplus’ spurs NZD higher

Markets had mostly been expecting New Zealand’s government to report a budgetary surplus this morning. However, the figure of NZ$7.5 billion is much higher than anybody thought. The consensus had been around NZ$3.5 billion, less than half the actual figure. Many traders in forex markets have noted that this stands in sharp contrast with the USA’s annual deficit of slightly less than US$1 trillion.

One can also note in turn that if New Zealand’s government appears to be ready for starting its own stimulus, the Reserve Bank will probably have less to do. This might well mean that this year’s big cuts in the RBNZ’s cash rate will at least slow down significantly.

Business confidence remains weak

Regular data from New Zealand recently has mostly been somewhat disappointing. NZIER business confidence indicated an ongoing drop while capacity utilisation also declined slightly, missing the forecast.

Selling of the Kiwi dollar over the past few months though is basically a result of the RBNZ’s cuts. Having started the year at 1.75%, one of the higher rates among OECD/G20 nations, New Zealand’s cash rate was cut rather quickly to 1%. How the RBNZ reacts to this morning’s news is likely to be crucial in the final quarter of the year.

PMI and trade in view

This isn’t a particularly big week in data from New Zealand, but Thursday night features some releases which could be important. The biggest of these is Business NZ PMI at 21.30 GMT, which is expected to decline slightly to around 48.5.

Trade talks between the USA and China are also a factor. Nobody seems to expect a resolution anytime soon, but any escalation would usually be a negative factor for trade-sensitive currencies like the Kiwi dollar.

Looking at NZDUSD specifically, volatility is likely tomorrow night at 20.00 GMT when the Federal Open Market Committee’s minutes come out. Traders will consider carefully mentions in this document of inflation and references to weaker American PMI data recently. Annual core inflation from the USA at 12.30 on Thursday is also a crucial release for the performance of the US dollar.

Kiwi dollar’s gains might continue

Fundamentals in general suggest that NZD might keep making gains against most majors over the next few days. Conversely, these are likely to depend on data affecting paired currencies. Traders must also not ignore the technical picture on charts with the Kiwi dollar: stay tuned for FX News’ technical analysis tomorrow.

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