NZD/USD: Coming up for air on 0.65 handle and treading water

NZD/USD is currently trading higher by 0.19% at 0.6503 during the time of writing, with the price travelling within a range of 0.6491 and 0.6514, battling against a strong daily downtrend that commenced from the 0.6680s, (which was a 50% retracement of the late March downtrend from the 0.69 handle. On Friday, the bird was the underperformer, falling from 0.6540 to 0.6489  to a three-week low. While U.S. data, (strong retail sales numbers), was a catalyst for a spike in the greenback on Friday, central bank's and geopolitics have been the main drivers on a fundamental basis for this pair. 

RBNZ and the Fed

The Reserve Bank of New Zealand, for instance, have set the Official Cash Rate at 1.5% and probably welcome a weaker bird considering the global macro backdrop and higher chances of another economic downturn. Analysts at ANZ Bank New Zealand expect the RBNZ to reduce the OCR by a further 0.25% and to provide strong forward guidance that rate hikes are a very distant prospect. On the flipside, the Federal Reserve has also shifted towards an easing bias and is expected by the market to cut interest rates later this year, but not as soon as this week. 

"With trade tensions likely to escalate, this Wednesday’s Fed meeting looks set to confirm market expectations - precautionary interest rate cuts are coming,"

analysts at ING Bank explained. 

This is where geopolitics is playing its co-piloting role in the cockpit, with the Fed at the wheel.  The analysts at ING bank note that the concerns about the economic implications of President Trump’s willingness to use trade tariffs in disputes with other countries mean that downside risks to growth are building. "On Wednesday, we expect the Fed to signal precautionary rate cuts are in the offing. Markets favour a 25bp rate cut in July with three additional rate cuts over the next twelve months."

NZD/USD levels

The bird has recovered marginally from a strong sell off and bears have rejected bullish attempts above 0.65 the figure. The 0.6480s guard a run to the Oct 2018 lows in the 0.6420s whereby a 127% extension comes in at the 0.6270s, in line with Autumn 2015 levels. Both long-term and short-term stochastics are oversold and some consolidation could be expected. On a break of 0.6550, a 50% mean reversion to 0.6580 could be on the cards.