NZD/USD – Kiwi Drops on Soft Dairy Auction Report

NZD/USD has posted considerable losses on Tuesday, as the pair is trading at 0.6490 in the North American session. In economic news, New Zealand GDT Price Index posted a sharp drop of 7.4%. Later in the day, New Zealand will release Employment Change and the Unemployment Rate. In the US, IBD/TIPP Economic Optimism came in at 47.8 points, matching the forecast.

New Zealand GDT Price Index, a key dairy auction report, continues to struggle. The index posted a sharp drop of 7.4%, marking a third straight decline. The markets are expecting better news later on Tuesday, as the estimate for Employment Change stands at 0.8%. This is one of the most important indicators, and a strong showing could bolster the New Zealand currency. The kiwi has been under pressure due to the Chinese slowdown, as the Asian giant is New Zealand’s second largest trade partner. Chinese indicators have painted a grim picture, as GDP continues to edge lower and recent manufacturing PMIs have pointed to a slowdown in the Chinese manufacturing sector. Weaker Chinese demand spells big trouble for the New Zealand export sector, and is weighing heavily on the New Zealand dollar, which plunged close to 400 points in January.

The Federal Reserve opted to stay on the sidelines in January, sounding cautious in tone and holding interest rates at 0.25%. Market speculation has now shifted to the Fed’s March meeting. Will we see another rate hike at that time? The Fed probably cannot answer this question just yet, so the markets will have to show some patience. The inflation picture remains problematic, with the Fed saying that inflation levels will remain low, and may not reach the target of 2.0% until 2018. Given these Fed’s continuing concerns about a lack of inflation, it’s hard to foresee another rate hike in March absent a strong improvement in key US indicators. The manufacturing sector is another weak spot in the US economy, and this was underscored last week, as the December reports for durables were dismal. Durable Goods dropped 1.2%, while Core Durables plunged 5.1%, its weakest showing since August 2014. These poor numbers underscore ongoing weakness in the US manufacturing sector, which has not improved despite positive economic conditions. There was more disappointing news on the housing front last week, as Pending Home Sales posted a negligible gain of 0.1%, well off the estimate of 1.0%.

Tuesday (Feb. 2)

• 8:53 New Zealand GDT Price Index. Estimate -7.4%
• 10:00 US IBD/TIPP Economic Optimism. Estimate 47.8 points. Actual 47.8 points
• All Day – US Total Vehicle Sales. Estimate 17.4M
• 13:00 – US FOMC Member Esther George Speaks
• 16:45 New Zealand Employment Change. Estimate 0.8%
• 16:45 New Zealand Unemployment Rate. Estimate 6.1%
• 16:45 New Zealand Labor Cost Index. Estimate 0.5%

*Key releases are highlighted in bold

*All release times are EST

NZD/USD for Tuesday, February 2, 2016

NZD/USD February 2 at 10:30 EST

Open: 0.6542 Low: 0.6461 High: 0.6554 Close: 0.6488

NZD/USD Technical

• NZD/USD posted losses in the Asian and European sessions. The pair has recovered slightly in North American trade
• There is resistance at 0.6605
• 0.6449 is providing weak support and could be tested in the North American session

Further levels in both directions:

• Below: 0.6449, 0.6344, 0.6233 and 0.6152
• Above: 0.6605, 0.6738 and 0.6897

OANDA’s Open Positions Ratio

In the NZD/USD ratio, short positions have made slight gains, with the ratio showing a split between long and short positions. This is indicative of a lack of trader bias as to which direction the pair will take next.

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.