NZD/USD Weekly Outlook August 22-26

The Greenback tumbled in the past week, but commodity currencies were seen posting the smallest gains among the majors. NZD/USD posted gains for the week, but was seen struggling at resistance despite US Dollar weakness.

Resistance at the 0.7300 has proven to be a big hurdle for the pair. NZD/USD briefly scaled above the resistance following better than expected data on Tuesday, but the move was not sustained and proved to create a high for the week. Several subsequent attempts were made at the level in the second half of the week, but the pair failed to break higher.

Labor data out of New Zealand showed the unemployment rate improving to 5.1%, against an expected 5.3%. Quarterly employment change rose 2.4% well exceeding the expected 0.6% rise. Following the initial spike high, a reversal resulted in the pair erasing nearly 90% of realized gains for the week. A bottom was made during the release of the Fed’s latest monetary policy meeting minutes.

Early week Fed comments had level set markets for a hawkish FOMC meeting minutes release. The release served to disappoint markets as it pointed to a divided Fed. There were arguments for and against improvements in the labor markets, as well as the economic outlook following the EU referendum. The Fed signaled a data-dependant stance, emphasizing economic releases ahead of the September Fed meeting.

The focus is now shifted to GDP figures out of the US, and Fed chair Yellen’s speech on Friday. The second-quarter GDP figures are expected at 1.1%, following a significant shortfall in the first estimate. Janet Yellen’s speech at the Jackson Hole Symposium stands to impact that the pair as there has been some expectations that she may signal for a September rate hike. A rate hike in the US would weigh heavy on high yield currencies, and price action in the majors have indicated exactly that over the past week.

Friday’s recovery in the US Dollar triggered an initial decline in NZD/USD while the pair was seen falling into a range as the Dollar continued to appreciate, signaling that a further recovery in the Greenback may not weigh heavy on the currency pair in the new week. A rising trendline in the pair from August 7 lows has held the pair higher, and should provide support in the early week. A break of the trendline would signal a broader decline in the pair, and could target the first level of support seen at 0.7154. Resistance remains at the 0.7300 handle, and has been shown as significant. A sustained break above the level would carry bullish implications for the pair following several failed attempts, as stops are now likely accumulated above the level.

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clear up.

NZD/USD Consolidates Into a Narrowing Range

NZD/USD started the week out with a sharp decline as the US Dollar was seen strengthening, but the pair turned ahead of last week’s lows. In the recovery, the pair has reached a significant resistance zone that has stubbornly held the pair lower over the past few weeks. Price action in the exchange rate is now seen consolidating into a narrowing range on a 4-hour chart.

Strength in the US Dollar dominated the market open this week as a speech from Fed member Fischer over the weekend set the tone. Fischer focused on long-term strength in the labor markets, citing the recovery from the Great Recession as “remarkable” and “unappreciated”. He emphasized how close PCE inflation levels are to the Fed’s targets, suggesting that the Fed may raise rates in the near-term. The probability of a rate hike by the end of the year increased to 50% on Monday, as priced in by the futures market.

The economic calendar was light on Monday for NZD/USD. On Tuesday, new home sales and the Richmond manufacturing index figures will be released out of the United States, and trade balance figures will be reported from New Zealand.

Among the cross rates, AUD/NZD is seen attempting to carve out a bullish inverted hammer on the daily chart, after six consecutive daily declines. On a 4-hour chart, the pair has printed a bullish hammer, after briefly breaking below last week’s low in early North American trading.

The recovery in NZD/USD started with momentum as the 4-hour print into the European open engulfed the prior two candles, and closed above the weekly open. The more recent 4-hour candle has printed a bearish shooting star, after a rejection at resistance, negating the momentum in the recovery. The resistance zone between 0.7288 and 0.7298 remains critical for the currency pair, as several attempts to break higher since the RBNZ rate cut have been met with seller’s driving the exchange rate lower. A consolidation pattern now shows the exchange rate posting higher lows and lower highs over the past few weeks, suggesting the pair is coiling for a big move. A sustained break above the 0.7300 handle is likely to take the pair towards the 0.7500 handle. To the downside, last week’s low at 0.7201 will be the level to watch to gauge a break lower. Fed chair Yellen’s speech carries a high probability of breaking the pair out of the pattern, suggesting the pair may remain rangebound ahead of the event.

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RBNZ Sees at Least One More Rate Cut Amid Low Inflation Settings; Kiwi Jumps

Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler defended the bank's flexible inflation-target policy on Tuesday, saying that the bank is likely to cut interest rates further despite solid economic activity and soaring house prices as inflation expectations are still low.

"Our present judgement is that the current interest rate track, involving an expected 35 basis points of further interest rate cuts, balances a number of risks weighing on the economy, while generating an increase in CPI inflation back towards the mid-point of the 1-3% target range," Wheeler said during a private event in Dunedin on Tuesday morning.

"We do not believe that the outlook and balance of risks warrants a position of no policy change, nor a position of rapid easings."

The NZD/USD jumped 0.5% to 0.7305 on Tuesday morning in Dunedin, after Wheeler's speech.

On August 11 the RBNZ cut the Official Cash Rate (OCR) to a record-low 2.0% in an effort to boost price pressures and avoid another deterioration in inflation expectations.

NZD/USD at Fresh Highs For the Year Following Technical Break

NZD/USD pushed higher as the Dollar retreated, the pair broke above a declining trendline from August 10 highs, briefly trading at new highs for 2016. The technical break sets a bullish tone for the pair, while the Dollar has been met with support, causing the exchange rate to consolidate near highs.

NZD/USD has been struggling to make a sustained break above the 0.7300 handle since the RBNZ rate cut earlier this month. The bullish break now shows the pair closing above the critical resistance on a 4-hour basis.

The US Dollar index (DXY) started the week off strong with a gap higher and a steady appreciation in Asian trading, following a hawkish speech from Fed Vice President Fischer. DXY turned lower ahead of the European open, and a steady decline since shows the index retesting support on Tuesday. A rising trendline connecting early May lows with late June lows served to provide a bounce last week, following a strong decline in the index. The current decline has fallen into a consolidation after reaching the same trendline near the European open today.

The US property market showed an improvement with new home sales reported to increase by 654,000 against analyst expectations of a 575,000 increase, reflecting an 8-year high. The data failed to move the exchange rate. The next economic release pertaining to the pair comes from New Zealand, as Statistics New Zealand reports trade balance figures at 18:45 EST.

NZD/USD was last seen at 0.7340 for a gain of 0.99%, making the Kiwi Dollar the top performer among the majors. The pair was seen making a significant break in the cross rates as AUD/NZD declined to six-week lows. The pair broke below the August 1 low at 1.0436 during the North American close on Monday, and is seen consolidating near the level today. NZD/CAD is nearing a technical break point. The pair advanced to 0.9464 for a gain of 0.57% with a significant level seen at 0.9535. The level references the neckline of an inverted head and shoulders pattern in the pair dating originating from March 2014.

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NZD/USD forecast for the week of August 29, 2016

The New Zealand dollar initially tried to rally during the course of the week be as you can see has turned completely around and ended up forming a shooting star which of course is a very negative sign. Because of that, the market could very well pullback from here and look for the 0.70 level below. A break above the top of the shooting star is of course a very bullish sign, and would have longer-term buyers heading into the marketplace. At this point in time though, it looks like we’re going to continue to grind sideways overall.

NZD/USD Weekly Outlook August 29-September 2

Several attempts to push to fresh yearly highs were seen in the NZD/USD in the early week. But a hawkish speech from Janet Yellen encouraged US Dollar bulls, causing a sharp turn in the pair. The currency pair remains at risk of a broader decline in the upcoming week as labor and inflation data releases will be critical in determining the potential of a September rate hike for the Unites States.

NZD/USD made a bullish technical break in the early week, as the pair scaled a declining trendline from highs set during the last RBNZ rate cut. After briefly touching a fresh high for the year, the pair fell back and turned rangebound. Ahead of the Fed chair’s speech, however, the pair made another attempt at highs, while the US Dollar index (DXY) remained relatively unchanged. Yellen’s comments, followed by a clarification by Fischer, triggered a sharp turn in the pair resulting in a single day decline erasing gains for the week.

Janet Yellen stopped short of providing a clear heads up for a September rate hike, as the FOMC continues to be data dependent, and likely did not want to risk sending a signal ahead of Friday’s labor data to prevent a similar scenario to earlier this year. Data in the upcoming week will carry additional sensitivity to the Dollar, and market participants will be hard pressed to ignore the potential of a September hike if the data comes in strong.

PCE price index figures will be released on Monday, as the preferred measure of inflation for the Fed, the number is directly tied to a potential rate increase. The prior reading showed the annual figure at 1.6%, and an improvement in the number would be supportive for a near-term hike. On Friday, labor data will shed light on the other aspect of the Fed’s dual mandate. The NFP numbers are expected at 186,000 against a three-month average of 190,000. In the event both figures come in ahead of expectations, markets will likely look to fully price in a rate hike by the end of the year, and significantly push up September odds.

The futures market increased the probability of a rate hike by the end of the year to 59.1% on Friday, while September rate hike odds rose to 33.0%. Both figures are at the highest levels since the EU referendum, but continue to have further room to the upside.

Positioning in the Kiwi Dollar continues to remain somewhat neutral. In the week to August 23, the COT report indicated a small build of $13mn to the net short position in the currency, for a total of $64mn among non-commercials. The speculative positioning in the currency remains the smallest among the majors.

The negligible position sizing in the pair alleviates some of the downside risks for the pair in the event of continued bullish momentum in the Greenback, but the currency yield introduces risk. Both the Aussie and Kiwi have seen a steady bid but slow bid in the year thus far as the Dollar trended lower. A US rate hike, however, would stand to have strong bearish implications for both currencies, as the appeal for higher yielding currencies would diminish.

While the Kiwi has been able to limit losses on the week, Friday’s price action indicates increased selling momentum. For the week, NZD/USD posted a loss of 0.48%, marking the smallest loss among the majors. The currency was seen as the second strongest against the Greenback, as the Pound Sterling posted a small gain for the week. Friday’s decline in the pair marked a 0.88% loss, the third largest seen among the majors.

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NZD/USD Shrugs off US Inflation data and Recovers

NZD/USD saw a soft open to the week, with consolidation for most of the European Session. Inflation data out of the US added some pressure, but losses were not sustained, as a reversal in the pair has led to a break to new highs on the day, suggesting that a recovery is taking place in the exchange rate.

NZD/USD gapped lower at this week’s open, but was quick to close the gap. A slow decline found a bottom at the Asian market open, and a rally from lows was met with resistance seen at 0.7245. The pair retreated from the level only to fail once again on a second attempt ahead of the North American open. The US Data release triggered a continuation lower, but buyers were found at the 61.8% retracement measured from today’s lows, and served to push the pair above resistance into the European close. The smaller time frames for the chart now suggest a bottoming pattern is in play, with near-term risk to the upside.

Data out the United States today included personal income and personal spending, while the highlight was the PCE price index figures. The PCE index is the Fed’s preferred method for measuring inflation, and has been in focus following comments from Yellen and Fischer reviving the idea of a near-term rate hike. The annual figure printed at 1.6%, unchanged from the prior reading, and caused a low momentum rise in the Greenback. Gains were not sustained as most pairs were seen turning shortly after the release.

The monthly PCE price index was reported at 0.1%, in line with expectation and unchanged on the month. Monthly personal spending was reported to rise 0.3%, while personal income rose 0.4%, both in line with expectations.

Next on the economic calendar is building consents from New Zealand, the monthly figure is expected to decline 1.3%, and posted a decline of 2.2% in the prior month.

On the day, the Kiwi Dollar is seen as the top performer. Only the Aussie and Kiwi have been able to post gains against the Greenback. Among the cross rates, NZD/JPY is seen pushing higher, the pair trades at 74.04 with a prior high at 74.32. A break of the high would set a succession of higher highs and higher lows in the pair as the decline in mid-August failed to take out lows from early August. NZD/CAD gapped lower to start out the week but has posted strong gains throughout the day. The pair is on track to post a bullish candle that stands to engulf declines from the prior two days.

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BNZ says the Reserve Bank of New Zealand will be happy with Fed's Fischer

BNZ's commentary on remarks from Vice Chair of the Federal Reserve Stanley Fischer

• NZD currently sits within 2% of our short - term fair value estimate of circa 0.71
• The RBNZ will be happy that Fischer's comments knocked more than a cent off its value
• But there is still much to be liked about the currency amidst a strong recovery in dairy prices and, on the RBNZ 's own estimates, expectations for tightening capacity pressures.

NZ data: Q2 terms of trade down 2.1% q/q

Q2 terms of trade was expectd to fall 1.5%

• And the previous was +4.4%

• Export volumes +10.2% q/q (seasonally adjusted), at their highest levels since the series began in 1990.
• Dairy products made the largest contribution to the rise in export volume, seasonally adjusted volume up 13 percent
• The volume for dairy is at its highest level since the September 2012 quarter,
• Import volumes +0.7% q/q

• "While the amount of goods New Zealand exported this quarter was at record levels, price falls for key commodities meant the amount that we earned from exports was little changed," international statistics senior manager Jason Attewell said. "We sent more tonnes of dairy products this quarter than we have in the last four June quarters, but prices for these goods fell."