NZD/USD – Weak NZ Dairy Auction Index Sends Kiwi Lower

The New Zealand dollar continues to drop and has posted slight losses on Wednesday. In the North American session, NZD/USD is trading just below the 0.71 level. On the release front, New Zealand GDT Price Index declined 0.4%. In the US, ISM Non-Manufacturing PMI was unexpectedly strong, climbing to 56.5 points. This marked the strongest gain in eight months. The US trade deficit widened in May, buoyed by rising oil prices. Later in the day, the Federal Reserve releases the minutes of its June policy meeting. On Thursday, employment data will be in focus, with the release of ADP Nonfarm Employment Change and Unemployment Claims.

International dairy prices remain depressed, and the New Zealand Global Dairy Trade Auction had another bad outing, posting a decline of 0.4 percent. This follows a flat reading of 0.0 percent in the previous release. At the same time, the economy is showing positive signs. The business sector is brimming with confidence according to the latest indicators. The NZIER Business Confidence report surged to 19 points in the second quarter, compared to just 2 points in the first quarter. This comes on the heels of the monthly ANZ Business Confidence report, which jumped to 20.2 points in June, its best showing in five months. The construction sector is booming, thanks to a hot housing market, and the services sector is strong. There was more positive news as Commodity Prices indicator climbed 3.7%, its strongest gain since October 2015.  A tightening labor market could boost inflation, which would lessen pressure on the central bank to cut interest rates.

The aftershocks of the Brexit vote continue to hold the market’s attention, and the Federal Reserve and US monetary policy have understandably taken a back seat. The Fed will be on center stage later on Wednesday, as the Fed releases the minutes of its June policy meeting, which was held just one week before the Brexit vote. Fed Chair Janet Yellen and her colleagues have sounded cautious about the US economy, and the financial instability caused by Brexit could delay any rate hikes until 2017. The US economy is in good shape, but the Fed hasn’t raised rates since last December and is unlikely to seriously consider any rate hikes unless employment and inflation numbers point upwards. The US economy is in good shape, but the Fed hasn’t raised rates since last December and is unlikely to seriously consider any rate hikes unless employment and inflation numbers point upwards. Although Yellen recently said that Brexit would have an impact on the US, San Francisco Federal Reserve President John Williams seemed to disagree with that assessment. On Tuesday, Williams said that the US markets had reacted to Brexit as expected, and the impact on the US economy would be much smaller than the euro crisis of 2011-2012. Is Brexit having an impact on the Fed’s monetary stance? We may get an answer to that question when the Fed meets again for a policy meeting on July 27.

Britain may have voted “Out”, but what happens next? There is no timetable as to when the exit from the European Union will take place or what type of trade agreement will define the new economic relationship between the EU and Britain. British leaders are in no rush to leave, but European leaders have called on Britain to exit as soon as possible in order to minimize the uncertainty and instability caused by the Brexit vote. When it comes to the EU, Britain finds itself in limbo (“neither in nor out”), and the lack of clarity regarding Britain’s exit from the EU will likely translate into continuing volatility in the currency markets.

NZD/USD Fundamentals

Tuesday (July 5)

• 10:28 New Zealand GDT Price Index. Estimate Actual -0.4%

Wednesday (July 6)

• 8:30 US Trade Balance. Estimate -40.0B. Actual -41.1B
• 9:00 US FOMC Member Daniel Tarullo Speaks
• 9:45 US Final Services PMI. Estimate 51.5. Actual 51.4
• 10:00 US ISM Non-Manufacturing PMI. Estimate 53.3. Actual 56.5
• 14:00 US FOMC Meeting Minutes

Updated Key Events

Thursday (July 7)

• 8:15 US ADP Nonfarm Employment Change. Estimate 158K
• 8:30 US Unemployment Claims. Estimate 269K

*Key releases are highlighted in bold

*All release times are EDT

NZD/USD for Wednesday, July 6, 2016

NZD/USD July 6 at 10:30 EDT

Open: 0.7129 Low: 0.7079 High: 0.7129 Close: 0.7093

NZD/USD Technical

• NZD/USD posted slight losses in the Asian session. The pair moved higher European trade but has reversed directions in the North American session
• 0.7100 is fluid and is currently a weak resistance line
• 0.7011 is providing support
• Current range: 0.7011 to 0.7100

Further levels in both directions:

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

OANDA’s Open Positions Ratio

NZD/USD ratio is almost on Wednesday, continuing the lack of movement we saw in the Tuesday session. Long positions command a strong majority (59%), indicative of 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.