NZD Begins to Feel the Impending Rate Cut

Key Points:

• RBNZ expected to cut interest rates this week.

• Little in the way of technical bias.

• US Jolts Job Openings data could exacerbate losses.

The Kiwi Dollar began to slide slightly last week despite an excellent Global Dairy Prices Index result having generated some significant momentum early on. The bearish week came largely as a result of stronger than anticipated US employment data which saw sentiment return to the Greenback. Going forward however, the pair may not be finished stumbling just yet as the RBNZ is expected to cut the OCR by 25bps in the coming week.

At first, the Kiwi Dollar had been looking as though it was setting up for a strong week as the GDT Prices Index jumped higher by a staggering 6.6%. As a result of the increase in the index, the NZD surged higher and closed Tuesday’s session up at around the 0.7235 mark. However, the subsequent sessions saw sentiment swing away from the Kiwi Dollar just as quickly. Specifically, both the ADP and official Non-Farm Employment Change figures came in above expectations at 179K and 255K respectively. The resulting surge in USD sentiment saw the pair close the week down at the 0.7135 mark. Looking at the technical data now, the NZDUSD currently has no strong technical bias which will leave it particularly beholden to fundamentals this week. Specifically, both RSI and EMA activity are relatively flat and will likely need further time before giving a strong signal. However, the H4 Parabolic SAR has moved into a bearish configuration which could see the pair continue sliding ahead of the OCR announcement. This being said, the 100 day EMA has proven to be a source of dynamic support recently which could limit how far the NZD sinks this week.

As we move forward, this week will see the RBNZ make its decision on the OCR which is likely to send the Kiwi into decline. Currently expected to cut rates by around 25bps, the central bank has previously made its intentions clear that, in its view at least, the NZD needs to be devalued. Additionally, the US JOLTS Job Openings results are expected to come in at 5.67M which could exacerbate selling pressure in Wednesday’s session.

Ultimately, as a result of the relative certainty that the RBNZ will cut rates this week, there is little place for the Kiwi Dollar to go but down. This being said, if the AUD’s behaviour last week has taught us anything, some bullishness is not impossible. Consequently, keep a close eye on the fundamentals as they are likely to have a strong impact on the pair this week. Additionally, if the NZD does decline, it is likely to run into a solid support around the 0.7019 level so pay attention as the NZD nears this vital level.