NZD/USD bears on top for the open into the FOMC

  • NZD/USD bears are lurking for the open ahead of the FOMC.
  • Daily prospects are for a downside continuation as commodity-fx suffers dollar strength. 

NZD/USD ended the week flat after moving between a high of 0.6992 and a low of 0.6940 as the price consolidated at daily resistance. 

''Things may be less calm this week though, with the US Federal Reserve meeting the highlight in the US, setting the scene for the remainder of the Northern Hemisphere summer, with the annual Jackson Hole symposium another month away,'' analysts at ANZ Bank said on Monday.

Indeed, it is a big week for the US dollar that has so far reined the Fx leader board for the past couple of months just as volatility starts to pick up in the FX space. 

If we have seen a cycle low of the year in this regard, then some new territories could be made across forex which is exposing the downside in the kiwi. 

For the week ahead, the greenback would be expected to hold on to its top spot into Wednesday’s FOMC meeting.

Traders are expecting that the Federal Reserve will have to deal with the realities stronger than expected growth readings and inflationary pressures, despite the risks of the Delta variant.

In fact, the Delta variant is an additional bullish feature for the greenback given the recent exodus from the emerging markets.

MSCI is down nearly 8% since June in the confluence of the rising US dollar and covid cases around the world. prospects of vaccine boost in developed nations could bring about additional concerns in EM's as vaccine allocations start to dry in the developing parts of the world. 

Meanwhile, the Fed will be expected to indicate that tapering should emerge in 4Q this year, with the possibility of a first hike coming in 4Q22.

If 2Q21 GDP growth – expected at 8-9% quarter-on-quarter annualised – plus also June readings for personal consumption and the PCE deflator, all arrive strong, the US dollar should continue to prosper within the US dollar smile theory. Subsequently, this could weigh on the commodity complex for the weeks ahead.

''It is clear that short-end interest rates aren’t driving the NZD – if they were, why are we still below 0.70? Instead, the USD is enjoying support as US asset markets boom on the back of the Fed’s cautious approach to withdrawing stimulus. In that environment, something fresh is needed to give the NZD a boost, but what will it be?'' analysts at ANZ Bank wrote in a note on Monday. 

NZD/USD technical analysis

The price is meeting daily resistance as well as the confluence of the 61.8% Fibonacci retracement level meeting prior lows.

The pair would be expected to now melt to the downside. 

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