- NZD/USD has been in the hands of both the bears and bulls at the start of this week.
- NZ OIS pricing continues to say there’s a 45% chance of a rate cut by mid-2019.
NZD/USD has been in the hands of both the bears and bulls at the start of this week, travelling from 0.6512 up to 0.6546 and back again to 0.6517 for the US session's closing price - there has been a lack of catalysts to start the week while traders soak up the nonfarm payrolls event and the possibility of trade wars escalating while banking on EM risks that are here to stay for the longer term.
Its all eyes on the dollar really, while there are still little reasons to get long of the Kiwi - in fact, NZ OIS pricing continues to say there’s a 45% chance of a rate cut by mid-2019, with a rate hike not fully priced until May 2021. There hasn’t been any major economic data out for a few weeks, but what has been released has been lacklustre, as analysts at Westpac Banking Corporation pointed out:
"Our NZ data surprise model, which captures the proportion of data beating estimates, certainly says so. Over the past six months it has swung from an above-average 55% reading to 20% recently. There is a patchy relationship between our data surprise model and 2yr swap rates, providing an explanation for the swap rate fall this year. Looking ahead, from a contrarian perspective, the pace of positive data surprises is due for a rebound, suggesting upside risk for swap rates near term."
Meanwhile, the NZD finds itself at a similar level to when we went home last night after doing a small round trip higher overnight:
"Markets are still on tenterhooks awaiting any news on the trade front and until there is any clarity we suspect markets will be reluctant to push kiwi higher."
For the week ahead, markets will turn to this week's PPI and CPI releases that are key. Higher than expected CPI will only underpin the case for higher rates from the Fed - other key U.S. data in the week ahead include the JOLTS jobs, real weekly earnings, retail sales and industrial production.
There will also be ears to the ground for updates with respect to the U.S. imposing tariffs on an additional $200 billion of imports from China. When markets start to price in the additional $267 billion that President Trump threatened on Friday, just hours before China reported another record trade surplus with the U.S, one might expect additional gains in the greenback.
The price is recovering from the lowest levels since Jan 2016 and en-route back to the September 2015 levels down at 0.6289. However, there is room for consolidation with RSI on the weekly sticks turning up. Support is located at 0.6500 while resistance comes in at 0.6640.
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