The New Zealand Dollar came under selling pressure as increased trade war tensions between the US and China sent stocks lower during the first part of last week. There, US President Donald Trump threatened the world’s second-largest economy with $200b in tariffs. Then, the Kiwi Dollar resumed depreciating as the markets anticipated a flatter outlook for RBNZ rates in the long run.

Looking to next week, NZD might have room to continue descending. The currency does face an interest rate decision from the Reserve Bank of New Zealand, but that may pass without much volatility. Since May’s monetary policy announcement, there has not been much of economic updates to perhaps materially alter their assessment. Only last week, we had an in-line local GDP report where growth clocked in at 2.7% y/y in Q1.

Back in May, RBNZ Governor Adrian Orr said that he wants to see core inflation to rise before raising rates. Given that we have not had a CPI update since then, this opens the door for the central bank to reiterate the status quo. This being that a rate cut is just as much likely as a hike next. Given how low rate hike expectations in New Zealand already are for the end of the year, there is not much room for disappointment left.

With that in mind, domestically speaking we may seem some heightened Kiwi Dollar price action on a trade balance report Tuesday. Lately, New Zealand economic data has been tending to underperform relative to economists’ expectations. But this has been by increasingly less so since the middle of May. Net exports (another word for trade balance) is a component of GDP and can thus impact economic growth down the road.

Externally speaking, a loaded US economic docket has the potential to further bolster Fed hawkish expectations. From the world’s largest economy, we will get consumer confidence, GDP and the Fed’s preferred measure of inflation (Core PCE). Unlike New Zealand, US local data has been tending to cross the wires slightly better than expectations in recent weeks. More of the same may boost USD at the expense of NZD.

Finally, do keep an eye on how trade tensions continue brewing in not just the week ahead, but thereafter. Since the US additional tariffs threat, China has prepared a list of reciprocal measures. Signs of further escalation risks dragging down global stock prices and with it, the sentiment-sensitive New Zealand Dollar. As such, the fundamental forecast for it will have to be bearish.