The New Zealand dollar ended last week lower as the US dollar strengthened at the end of the week.
A higher reading in US producer prices, up a massive 1.0% over the month and announced early Saturday morning, caused markets’ recent inflation fears to be re-awakened.
The US consumer inflation report, CPI, is due on Tuesday night and will be carefully watched.
CNY jolted back to life
In Asia last week, inflation also tracked higher, with the Chinese consumer inflation report back into the positive, up 0.4% over the year. The producer prices report was up 1.0%.
The Chinese inflation reading sparked some life into the Chinese currency which has suffered a tough start to the year.
After climbing to a three-year high versus the US dollar, the Chinese yuan has drifted lower as investors favoured the rapidly improving growth prospects in the US.
While the CNY has been lower so far this year, most forecasters expect the Chinese currency will regain some strength, with the Reuters FX Poll median prediction looking for a 2.3% gain in the CNY over the next 12 months (source: Reuters, 31 March, 2021).
Land of the setting sun
Across Asia, the Japanese yen has been hit the hardest as investors look to relative growth differentials.
With the Japanese economy seen as a perennial underperformer ever since its 1980s bust, improving US growth prospects have contrasted with a lacklustre picture for Japanese growth.
The Japanese yen has fallen close to 8.0% versus the US dollar so far this year.
The yen’s weakness saw the NZDJPY climb to the highest level since February 2018 but the kiwi’s recent sell-off has taken some of the shine off this pair
Global pulse check
The performance of the global recovery will be further illustrated by some major data out of China this week.
On Tuesday, we see the Chinese trade balance for March, the first full month of the year after the interruption of the Chinese New Year.
On Friday, March-quarter GDP is out, along with March industrial production, retail sales and fixed asset investors.
RBNZ the local highlight
Locally, it’s a busy week, with the NZIER business confidence read on Tuesday, food prices on Thursday and the BusinessNZ manufacturing index due on Friday.
Of course, the local highlight is the Reserve Bank of New Zealand on Wednesday, with a close focus on whether the new housing regulations announced last month get a mention and how they might impact on the rate-setting decision-making process.
By Steven Dooley, APAC Currency Strategist – Western Union Business Solutions. You can contact him here.
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