NZD/USD – Kiwi Climbs to 4-week Highs, Markets Eye RBNZ Rate Decision

NZD/USD has posted considerable gains on Tuesday, reversing the losses which marked the Monday session. The pair is trading at the 0.6970 line in the North American session. On the release front, there are no major events out of the US or New Zealand. US employment indicators continue to sag, as Revised Nonfarm Productivity posted a decline of 0.6%, matching expectations. On Wednesday, the New Zealand central bank will release its rate statement and a Monetary Policy Statement. The markets are expecting the RBNZ to lower rates to 2.00%.

The New Zealand central bank is expected to lower rates by a quarter point at the Wednesday policy meeting, from 2.25% to 2.00%. The RBNZ surprised the markets in March, cutting rates from 2.50% to 2.25%. A rate cut could help lift inflation levels, but the housing market remains overheated and could pose a danger to the economy. The RBNZ has been reluctant to lower rates, as such a move could exacerbate the housing situation. However, the economy is in need of help, and the markets are expecting the RBNZ to step in on Wednesday and cut rates for the first time since January. There was positive news last week, as the GDT Price Index, which measures prices at a bi-weekly dairy auction, continues to strengthen. The key indicator rose 3.4% on Thursday, following a 2.4% gain in the previous release. Global demand for New Zealand’s dairy products has increased, bolstering the crucial export sector.

With a rate hike from the Fed up in the air, a speech from Fed Chair Janet Yellen on Monday was closely watched by the markets. Speaking at the World Affairs Council in Philadelphia, Yellen said she remained optimistic about the US economy and hinted that the Fed would raise interest rates, but crucially, she gave no indication as to when that might occur. This omission was in sharp contrast to her remarks just over a week ago, when she declared that a hike would likely be appropriate “in the coming months”. Yellen was cautious in her tone on Monday, saying “[i]f incoming data are consistent with labor market conditions strengthening and inflation making progress toward our 2 percent objective as I expect, further gradual increases in the Federal Funds Rate are likely to be appropriate”.  Yellen played down the dismal Nonfarm Payroll report, saying that the markets shouldn’t attach too much significance to one soft report. The markets had lowered expectations for a June rate hike, and Yellen’s speech has all but priced out a June move. However, a rate increase in July or September remains on the table, and any decision by the Fed to raise or maintain rates will be data-dependent, particularly inflation and employment data.

The currency markets wrapped up last week with strong volatility, courtesy of a dismal Nonfarm Payrolls report. The April release plunged to 38 thousand, stunning the markets. This was the lowest reading since August 2010. The estimate stood at 159 thousand, which was almost identical to the previous release. The US dollar took a beating on Friday, and the New Zealand dollar took full advantage, gaining 140 points and hitting 4-week highs. The unexpectedly soft release dampened expectations for a June hike. Some of the plunge in the NFP release was attributable to a strike by workers at Verizon, a major communications company. Still, even without this component, the indicator would have posted a gain of only 72,000, well short of expectations. In other US employment news, Average Hourly Earnings, which measures wage growth, posted a weak gain of 0.2%. The unemployment rate fell to 4.7%, but workforce participation dropped to 62.6%.

NZD/USD Fundamentals

Tuesday (June 7)

• 8:30 US Revised Nonfarm Productivity. Estimate -0.6%. Actual -0.6%
• 8:30 US Revised Unit Labor Costs. Estimate 4.0%. Actual 4.5%
• 10:00 US IBC/TIPP Economic Optimism. Estimate 49.1. Estimate 48.2
• 15:00 US Consumer Credit. Estimate 19.1B
• 18:45 New Zealand Manufacturing Sales

Upcoming Key Events

Wednesday (June 8)

• 10:00 US JOLTS Job Openings. Estimate 5.69M
• 17:00 New Zealand Official Cash Rate. Estimate 2.00%
• 17:00 New Zealand RBNZ Rate Statement
• 17:00 New Zealand Monetary Policy Statement
• 17:00 RBNZ Press Conference
• 21:10 RBNZ Governor Graeme Wheeler Speaks

*Key releases are highlighted in bold

*All release times are EDT

NZD/USD for Tuesday, June 7, 2016

NZD/USD June 7 at 11:00 EDT

Open: 0.6913 Low: 0.6892 High: 0.6974 Close: 0.6968

NZD/USD Technical

• NZD/USD was flat in the Asian session. The pair has posted gains in the European and North American sessions
• There is resistance at 0.7011
• 0.6897 has some breathing room in support as NZD/USD has posted gains in the Tuesday session

Further levels in both directions:

• Below: 0.6897, 0.6738, 0.6621 and 0.6542
• Above: 0.7011, 0.7100 and 0.7231
• Current Range: 0.6897 to 0.7011

OANDA’s Open Positions Ratio

The NZD/USD ratio is unchanged on Tuesday, with short positions showing a majority of 53%. This is indicative of a slight trader bias towards NZD/USD reversing directions and moving to lower levels.

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.