NZD/USD – Kiwi Rally Continues as Markets Digest Brexit

The New Zealand dollar has posted considerable gains on Wednesday, continuing the upward trend that marked the Tuesday session. The pair is trading slightly above the 0.71 level in the North American session. On the release front, it’s a busy day. New Zealand will release ANZ Business Confidence. In the US, Pending Home Sales plunged 3.7%, much weaker than expected. US Personal Spending posted a gain of 0.4%, matching the forecast. On Thursday, the US releases Unemployment Claims.

US GDP, a closely watched indicator, was revised upwards in the first quarter. Final GDP posted a gain of 1.1%, above the estimate of 1.0%. This reading was stronger than the Preliminary GDP reading of 0.8%. Although the upward revision was welcome news, the revised GDP report marked the weakest gain in a year. On the consumer front, CB Consumer Confidence impressed by climbing to 98.0 points, easily beating the forecast of 93.2 points. Is US consumer confidence strengthening? It’s not clear, as last week’s UoM Consumer Sentiment report dropped to 93.4 points and missed expectations. On Wednesday, Personal Spending dipped to 0.4%, compared to a strong gain of 1.0% in the previous release.

There was excellent news from New Zealand to start off the week, as the trade surplus jumped to NZ$385 million in May, much higher than the forecast of NZ$185 million. The robust figure was bolstered by strong Chinese demand for logs, and marked the highest surplus since March 2015. Despite the impressive release, the New Zealand dollar lost ground on Monday as investors were in no mood to snap up risky assets like the New Zealand dollar. However, the currency has reversed directions since then, as the markets begin to digest the British electorate’s vote to leave the European Union, which caught the markets completely by surprise.

The aftershocks of the Brexit vote continuing to reverberate in the Britain and Europe, but the dust has begun to settle, as markets have stabilized and the British pound has steadied. Political leaders on both sides of the Channel will have to pick up the pieces and deal with the radical new landscape, which was unthinkable just a few months ago – that of a European Union without Britain. The vote to leave the EU, which stunned the markets and the public, has caused deep instability in Europe and the UK and wiped out a staggering $3 trillion from global stock markets. The currency and commodity markets have been volatile. Risky assets like the New Zealand dollar lost ground in response to Brexit, while gold has surged higher. Chancellor of the Exchequer George Osborne and Bank of England Governor Mark Charney have sought to reassure the markets and the public that the situation is under control, but is it? The political picture is fluid, as the Conservatives must choose a new leader, the Labor Party is in turmoil and general elections are likely later in the year. On the financial front, the pound and the markets have taken a beating and London’s position as a world financial center has been shaken. The uncertainty is not going to disappear anytime soon, so traders can expect further volatility in the currency markets.

British Prime Minister Cameron, a staunch supporter of the EU, finds himself in the unenviable position of explaining the Brexit decision to fuming Europeans. Cameron arrived in Brussels for an EU Summit on Tuesday and the meeting was fraught with tension, dismay and anger. Clearly, the “divorce of the “century” between Britain and the EU could be rancorous and messy. Cameron has asked for time to prepare Britain’s exit and wants to renew “productive” relations with Europe. However, the Europeans are in no mood for hugs and kisses on both cheeks. German Chancellor Merkel said that the UK could not “cherry pick” and that a relationship with Europe entailed obligations and not just rights – in other words, the Europeans are rejecting “half membership”. As well, Europe wants Britain to exit as soon as possible, in order to minimize the uncertainty and instability caused by the Brexit vote. French President Hollande wasted no time going on the attack, saying that London should no longer remain a center for clearing euro trades. This market is worth trillions of euros in currency and derivative deals and such a move would be a severe blow to London’s financial sector. Already, the European Banking Authority has announced it is leaving London and moving to Paris or Frankfurt.

NZD/USD Fundamentals

Wednesday (June 29)

• 8:30 US Core PCE Price Index. Estimate 0.2%. Actual 0.2%
• 8:30 US Personal Spending. Estimate 0.4%. Actual 0.4%
• 8:30 US Personal Income. Estimate 0.3%. Actual 0.2%
• 10:00 US Pending Home Sales. Estimate -0.9%. Actual -3.7%
• 10:30 US Crude Oil Inventories. Estimate -2.3M.
• 16:30 US Bank Stress Test Results
• 18:45 New Zealand Building Consents
• 21:00 New Zealand ANZ Business Confidence

Upcoming Key Events

Thursday (June 30)

• 12:30 US Unemployment Claims. Estimate 267K

*Key releases are highlighted in bold

*All release times are EDT

NZD/USD for Wednesday, June 29, 2016

NZD/USD June 29 at 10:10 EDT

Open: 0.7074 Low: 0.7056 High: 0.7136 Close: 0.7125

NZD/USD Technical

• NZD/USD was flat in the Asian session. The pair has been flat in the European and North American sessions
• 0.7100 is a weak support level
• 0.7231 is a strong resistance line
• Current range: 0.7100 to 0.7231

Further levels in both directions:

• Below: 0.7100, 0.7011, 0.6897 and 0.6793
• Above: 0.7231, 0.7319 and 0.7454

OANDA’s Open Positions Ratio

NZD/USD ratio is showing little movement on Wednesday. Long positions command a strong majority (59%). This is indicative of trader bias towards NZD/USD continuing to post gains.

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.