NZD/USD – New Zealand Dollar Shrugs off Strong GDT Price Index

NZD/USD has edged lower on Thursday, reversing directions from the Wednesday session. The pair is trading at the 0.68 line in the North American session. On the release front, the GDT Price Index posted a strong gain of 3.4%. Later in the day, New Zealand releases ANZ Commodity Prices. In the US ADP Nonfarm Payrolls came in at 173 thousand, very close to the forecast. Unemployment Claims were almost unchanged at 267 thousand, within expectations. On Friday, we’ll get a look at additional US employment data, highlighted by Nonfarm Employment Change.

New Zealand 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. New Zealand continues to undergo a housing boom, compounded by record immigration levels. Housing remains in short supply in Auckland, the country’s largest city. Construction indicators are pointing upwards, but the housing shortage presents a tricky problem for the RBNZ. Inflation rates remain very low, but the RBNZ has been reluctant to lower rates (unlike the RBA), since such a move could exacerbate the housing situation and have negative effects on the economy. Still, the markets have priced in a quarter-point cut at the RBNZ’s June meeting, which would lower rates to an even 2.00%. Will the central bank follow expectations and lower rates next week? If so, the New Zealand dollar could lose ground.

OPEC members will gather in Vienna on Thursday, but analysts are not expecting OPEC members to reach an agreement on a production cap or new targets, given the deep animosity between Saudi Arabia and Iran. Iran has refused to agree on an output policy in recent years, preventing members from reaching an agreement to lower or freeze production in order to boost low oil prices. Iran reiterated its policy on Wednesday, saying it would not sign off on any commitment regarding output levels. The current situation has allowed OPEC countries to pump at will, as members have adopted a mantra of “every man for himself”, jockeying for a larger piece of the oil market pie. Later on Thursday, the US releases Crude Oil Inventories, and an unexpected reading could result in volatility in the oil market.

Is the Fed planning to raise interest rates? Recent comments by Federal Reserve chair Janet Yellen and other Fed policymakers have strongly hinted that a rate hike is on the table this summer. On Friday, Yellen said that if the US economy continued to improve, a rate hike would be appropriate in the “coming months”. This was followed by St. Louis Reserve President James Bullard, who said on Monday that global markets were “well prepared” for a summer interest rate rise, although he didn’t provide any specific dates. Odds of a rate hike in June have increased, but the Fed will be hard-pressed to raise rates if key indicators don’t show improvement, particularly inflation numbers. According to CME Group, traders have priced in a June rate hike at 28%, 60% for July and 68% in September. Market sentiment has strongly shifted towards the Fed raising rates, and this could boost the US dollar against its rivals.

NZD/USD Fundamentals

Wednesday (June 1)

• 10:43 New Zealand GDT Price Index. Actual 3.4%

Thursday (June 2)

• All Day – OPEC Meetings
• 7:30 US Challenger Job Cuts. Actual -26.5%
• 8:15 US ADP Nonfarm Employment Change. Estimate 174K. Actual 173K
• 8:30 US Unemployment Claims. Estimate 270K. Actual 267K
• 8:35 US FOMC Member Jerome Powell Speaks
• 10:30 US Natural Gas Storage. Estimate 83B
• 11:00 US Crude Oil Inventories. Estimate -2.7M
• 21:00 New Zealand ANZ Commodity Prices

Upcoming Key Events

Friday (June 3)

• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 159K
• 8:30 US Unemployment Rate. Estimate 4.9%
• 10:00 US ISM Non-Manufacturing PMI. Estimate 55.4

*Key releases are highlighted in bold

*All release times are EDT

NZD/USD for Thursday, June 2, 2016

NZD/USD June 2 at 10:00 EDT

Open: 0.6819 Low: 0.6777 High: 0.6834 Close: 0.6798

NZD/USD Technical

• NZD/USD was flat in the Asian session. The pair posted losses in the European session but has recovered most of these losses in North American trade
• 0.6738 is providing support
• There is resistance at 0.6897

Further levels in both directions:

• Below: 0.6738, 0.6621, 0.6542 and 0.6415
• Above: 0.6897, 0.7011 and 0.7100
• Current Range: 0.6738 to 0.6897

OANDA’s Open Positions Ratio

The NZD/USD ratio is almost unchanged on Thursday, with short positions at 48%. This is indicative of a slight trader bias towards NZD/USD reversing directions and moving higher.

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.