NZD/USD – Kiwi Slightly Higher, Markets Await Fed Minutes

NZD/USD has posted slight gains on Wednesday and is trading at 0.6630 in the North American session. In the US, there was positive inflation news as PPI posted a gain of 0.1%, beating the estimate. Building Permits met expectations, but Housing Starts faltered, slipping to a three-month low. Later in the day, the Federal Reserve will release the minutes from its January meeting. New Zealand will release PPI Input, an important manufacturing indicator.

It’s been an unusually busy week in New Zealand, with a host of key indicators. Retail Sales softened in the fourth quarter, but still posted a respectable gain of 1.2%, which was within expectations. Inflation Expectations, which surveys business managers, dropped to 1.6%, its lowest level since 1994. There wasn’t much relief from the GDT Price Index, which came in at -2.4%, marking a fourth straight decline for the key indicator. Dairy powder prices have fallen 15 percent this year, while the New Zealand dollar has risen about five percent during this time. Weighing in on this topic, New Zealand Prime Minister John Key made a rather bizarre comment, saying he was surprised that the currency hadn’t lost ground in line with falling dairy prices – it’s a safe bet that similar comment from Angela Merkel or Barack Obama had made similar comments about the euro or US dollar would have shaken up the currency markets.

The Federal Reserve will again take center stage on Wednesday, with the release of the minutes of the January policy meeting. After that meeting, Janet Yellen & Co. issued a cautious policy statement, saying that the Fed was “closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation”. The decision to hold interest rates at 0.25% was unanimous, and the Fed acknowledged that the US economy was slowing down. Gone was the optimism which characterized the December statement, when the Fed raised rates and hinted at further rate hikes in 2016. Given the current economic situation, many experts expect no more than two rate hikes this year, perhaps in June and December. At the same time, any improvement in key US numbers will heat up speculation about a possible March hike.

There was an interesting development last week when Janet Yellen appeared before Congress and refused to rule out negative interest rates. The Fed has rejected making such a move in the past, and this is unlikely to change. Still, Negative Interest Rate Policies (NIRP) has become a relevant tool for central banks. The Bank of Japan shocked the markets in January when it adopted negative rates, and the ECB has had this policy in place for some time on deposits, and has hinted that it could adopt this scheme to its benchmark rate, which currently stands at 0.05%. Such a scheme is supposed to combat deflation and boost economic growth by pressuring banks to increase lending.

Wednesday (Feb. 17)

• 8:30 US Building Permits. Estimate 1.21M. Actual 1.20M
• 8:30 US PPI. Estimate -0.2%. Actual +0.1%
• 8:30 US Core CPI. Estimate 0.1%. Actual 0.4%
• 8:30 US Housing Starts. Estimate 1.16M. Actual 1.10M
• 9:15 US Capacity Utilization Rate. Estimate 76.7%. Actual 77.1%
• 9:15 US Industrial Production. Estimate 0.3%. Actual 0.1%
• 14:00 FOMC Meeting Minutes
• 16:45 New Zealand PPI Input
• 16:45 New Zealand PPI Output
• 18:00 US FOMC Member James Bullard Speaks

Upcoming Key Events

Thursday (Feb. 18)

• 8:30 US Philly Fed Manufacturing Index. Estimate -2.9 points
• 8:30 US Unemployment Claims. Estimate 275K

*Key releases are highlighted in bold

*All release times are EST

NZD/USD for Wednesday, February 17, 2016

NZD/USD February 17 at 11:15 EST

Open: 0.6581 Low: 0.6554 High: 0.6635 Close: 0.6636

NZD/USD Technical

• NZD/USD was flat in the Asian and European sessions. The pair has posted considerable gains in North American trade.
• There is resistance at 0.6738
• 0.6605 remains busy and has switched to a support role. It is a weak line.

Further levels in both directions:

• Below: 0.6605, 0.6449, 0.6344 and 0.6233
• Above: 0.6738, 0.6897 and 0.7011

OANDA’s Open Positions Ratio

The NZD/USD ratio is showing movement towards short positions, which currently have a majority of positions (55%). This is indicative of trader bias towards NZD/USD reversing directions and heading to lower ground.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.