Will Kim Dotcom Crush The Kiwi?

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Market Drivers for August 26 2014

New Zealand Trade balance widens as monthly exports fall for first time since July 2013

No Data in Europe Putin Poroshenko meeting eyed

Nikkei -0.59% Europe -0.29%

Oil $93/bbl

Gold $1290/oz.

Europe and Asia:

NZD Trade Balance -692M vs. -475M

GBP UK BBA Mortage Approvals 42.7K vs. 44K
North America:

USD Durable Goods 08:30

USD Consumer Confidence 10:00

It’s been an extremely quiet night of trade in the currency market with most of the major flatlining around yesterday’s New York close as a barren economic calendar and the final week of summer have conspired to keep volumes very low.

The only release of note was in the Asian session where the New Zealand Trade Balance printed even worse than forecast. The July Trade deficit widened to -692M vs, -475M as monthly exports fell for the first time in a year. Exports to China were down -5.4% while exports to Australia declined -7.1%. Imports fell as well by -1.8%.

Although dairy exports rose, they were offset by declines in other commodities led by pine logs. Overall the trade numbers saw a near 1 Billion NZD negative swing from the month prior and are likely to put further political pressure on the incumbent government led by the National party.

Yesterday we noted that the entrance into election of the controversial web entrepreneur Kim Dotcom, threatened to upend the staid New Zealand politics. With voting scheduled for September 20th any threat to the reelection of current Prime Minister John Key could create further turbulence in the kiwi. Tonight’s data provided strong ammunition for the opposition Labor party and markets will be watching the polls very carefully over the next few weeks to determine if there has been a significant shift in voter sentiment.

The kiwi drifted lower ahead of the release and fell to a session low of 8315, but found some bids ahead of the 8300 figure and bounced to 8335 as it consolidate its losses. The pair has been in a virtual freefall ever since the RBNZ noted last month that it will not hike rates any further. The recent bout of political uncertainty has only added to the volatility of the pair and any significant chance that the more left leaning Labor may wrest control of the government from the National party could push the pair towards the 8000 level over the next few weeks.

Meanwhile in US the focus will be on Durable Goods and Consumer Confidence numbers with markets expecting a decline in both. A weaker than expected reading could send USD/JPY back towards the 103.50 level after it failed to hold 104.00 barrier in yesterday’s trade. The 104.00-105.00 corridor remains crucial to further USD/JPY strength and only a breakout above those levels would suggest the start of fresh bull move in the pair.

Boris Schlossberg
Managing Director

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