Funds Look to Take Down New Zealand Dollar After Runaway Gains

(Bloomberg) -- The New Zealand dollar has been the Asia Pacific’s best-performing currency this quarter, much to the chagrin of leveraged funds who are betting on it to fall.

A five-month high in consumer confidence, an improvement in business sentiment and fast-tracking of government infrastructure spending have all helped propel the kiwi almost 7% versus the dollar from a four-year low hit in early October.

As has the Reserve Bank of New Zealand’s decision to give banks longer to raise their capital buffers, which has taken some of the heat out of rate-cut expectations. Investors are now pricing in less than a 40% possibility of rates being cut by the central bank in 2020.

But bears may be in for some respite, with technical indicators suggesting the rally is approaching a near-term peak.

The kiwi’s rebound has brought it to the point where slow stochastics, a key measure of momentum, shows it is overbought and may need to take a breather.

The currency also has the hurdle of the bear trendline that starts from its March high. It slipped through it on Friday, but has yet to prove that it was a decisive breach.

A halt to the rally can’t come soon enough for leveraged funds, who have built up a net short position in the New Zealand dollar of 19,198 contracts, according to Commodity Futures Trading Commission data for the week ended Dec. 3.

This is the most bearish they have been in a year.

Given the technicals that are stacking up against the kiwi, it is questionable whether any of the economic data due this week can push the currency much higher.

Consumer and business confidence take center stage on Tuesday and third-quarter growth numbers will be in focus on Thursday. While gross domestic product is forecast to tick up slightly from a year earlier, there is little sign it will be enough to change the picture for interest rates.

All of this suggests that the best performer in the Asian space may be facing heavy weather this week.

Below are the key Asian economic data and events due this week:

• Monday, Dec. 16: RBA’s Kearns speaks, Japan Jibun Bank PMI’s, China fixed assets ex rural YTD, industrial production and retail sales, Indonesia trade balance, Philippine overseas remittances, India wholesale prices
• Tuesday, Dec. 17: RBA minutes and Australian home loans, New Zealand ANZ business confidence and 4Q Westpac consumer confidence, Singapore NODX
• Wednesday, Dec. 18: New Zealand 3Q current account GDP ratio YTD and BoP current account balance, Japan adjusted trade balance, Bank of Thailand rate decision
• Thursday, Dec. 19: Australia employment, New Zealand trade balance and 3Q GDP, BOJ rate decision, Bank Indonesia rate decision, Philippine BoP overall
• Friday, Dec. 20: New Zealand ANZ consumer confidence and credit card spending, Japan CPI, China 1-year and 5-year loan prime rate, South Korea PPI, Malaysia CPI

To contact the reporter on this story: David Finnerty in Singapore at dfinnerty4@bloomberg.net

To contact the editors responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net, Brett Miller, Shikhar Balwani

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