NZD/USD – Kiwi Rally Continues on Yellen Dovish Comments

NZD/USD has posted strong gains on Wednesday, continuing the upward trend which marked the pair in the Monday and Tuesday sessions. In the North American session, the pair is trading at 0.6930. On the release front, New Zealand Building Consents rebounded with a sharp gain of 10.8 percent. Later in the day, we’ll get a look at ANZ Business Confidence. Over in US, ADP Nonfarm Employment Change, which measures payrolls in the private sector, softened to 200 thousand in March, but beat the estimate. This indicator will be followed by the official Nonfarm Payrolls report on Friday, with the estimate standing at a healthy 206 thousand. As well, Crude Oil Inventories posted a surplus of 2.3 million, below the estimate of 3.1 million.

The New Zealand dollar has soared this week, gaining 270 points against the US dollar, as NZD/USD trades at its highest level since June 2015. The kiwi jumped after Janet Yellen surprised the markets with an ultra-dovish speech in New York. Yellen served notice that the Fed would continue its cautious approach towards monetary tightening, given the collapse of oil prices and risks due to the Chinese slowdown. Yellen downplayed higher inflation levels, which in January reached 1.7 percent, the highest in almost two years. This reading is not far from the Fed’s target of 2.0 percent and some Fed members have gone on record saying that the Fed should raise rates before inflation pushes above the 2.0 percent threshold. At the same time, Yellen acknowledged that there were encouraging signs in the US economy, including a strong labor market. Her comments dampened recent speculation about an April rate hike, which was precipitated by a flurry of hawkish comments from Fed officials. It will be interesting to see if Yellen’s cautious assessment will be reinforced or challenged by Fed members in the coming days.

The US economy expanded at a respectable growth of 1.4 percent in the fourth quarter, above the estimate of 1.0 percent. However, there are signs that we could see softer numbers for the first quarter of 2016. Earlier this week, the Atlanta Fed downgraded its forecast for Q1 from 1.4 percent to 0.6 percent. The original forecast, released just last week, was lowered in response to a downgraded forecast of personal income and outlays by the US Bureau of Economic Analysis. If US economic activity did in fact weaken in Q1, we could see the US dollar lose ground against its major rivals.

NZD/USD Fundamentals

Tuesday (March 29)

• 17:45 New Zealand Building Consents. Actual 10.8%

Wednesday (March 30)

• 8:15 ADP Nonfarm Employment Change. Estimate 195K. Actual 200K
• 10:30 US Crude Oil Inventories. Estimate 3.1M. Actual 2.3M
• 18:00 New Zealand ANZ Business Confidence

Upcoming Key Events

Thursday (March 31)

• 8:30 US Unemployment Claims. Estimate 266K

*Key releases are highlighted in bold

*All release times are DST

NZD/USD for Wednesday, March 30, 2016

NZD/USD March 30 at 10:45 DST

Open: 0.6862 Low: 0.6840 High: 0.6965 Close: 0.6933

NZD/USD Technical

• NZD/USD was flat in the Asian session. The pair posted strong gains in European trade and has leveled off in the North American session.
• 0.6897 continues to alternate between support and resistance. It is currently a weak support line.
• There is resistance at 0.7011

Further levels in both directions:

• Below: 0.6897, 0.6738, 0.6605 and 0.6449
• Above: 0.7011, 0.7100 and 0.7231
• Current Range: 0.6897 to 0.7011

OANDA’s Open Positions Ratio

The NZD/USD ratio has shown strong movement towards short positions, consistent with sharp gains by NZD/USD which covered long positions. Long and short positions are close to an even split, indicative of a lack of trader bias as to what direction NZD/USD 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.