NZDUSD prepares for a big week

It has been an interesting start to the week for NZDUSD, with the pair punching through a short-term resistance zone around 0.7610 before a surge towards the US dollar paired some of these gains. The volatility in the pair is expected continue this week with the release of important economic data from both the US and NZ and policy meetings at both central banks.

On Wednesday morning NZ trade and business confidence data is due to be released, both of which are important indicators of the economic health of the broader economy. The trade balance is expected to widen to 300M in March, backed by 4.4bn and 4.05bn increases in exports and imports respectively. This is to be followed by a monetary policy meeting at the RBNZ on Thursday morning. At its policy meeting last month, Governor Wheeler noted that the bank was expecting a period of stability in the official cash rate, even as it predicted that inflation will remain below its target of 2% for the next two years. However, inflation growth is currently a measly 0.1% y/y after falling 0.3% last quarter, which was softer than the market was expecting and is clearly concerning policymakers. This may lead to a more dovish tone from Governor Wheeler at the RBNZ’s policy meeting this week. The bank is widely expected to leave the official cash rate on hold this time around, but the threat of deflation and the dovish comments from McDermott last week represent a potential shift in the outlook for interest rates in NZ. It is looking more and more likely that the next move by the RBNZ may be to lower the official cash rate, as opposed to the widespread belief at the beginning of the year that the bank would hike rates in 2015.

In the US, the FOMC meeting on Wednesday is expected to largely be a non-event. We think the bank won’t rule out the possibility of a rate hike in June, but there’s a chance it could push out expectations of tighter monetary to beyond even the market’s fairly dovish expectations. This could derail the US dollar once more, but it will also depend on what Q1 GDP looks like. The growth figures are due out only hours before the Fed’s statement and are expected to show the economy grew an annualised 1.0% last quarter.

From a technical perspective, NZDUSD looks to be in consolidation mode around current levels. Bears were rejected from a push towards 0.7500, but bulls haven’t been able to rally the pair off its 100-day SMA, at least not yet. A break of 0.7500 may see the pair make a run towards an important support zone around 0.7400, as there is bearish divergence between price and RSI on a daily chart. On the upside, a break of 0.7745 may add to NZDUSD’s recent bullish momentum.

Source: FOREX.com