NZD/USD – Headed Below 64 cents

NZD/USD – Headed Below 64 cents

NZD/USD – Headed Below 64 cents

Fundamentally we have strong reasons to believe that NZD/USD will head lower. Not only has the labor market deteriorated and milk prices declined but according to the latest reports, food prices continue to fall at a faster pace, leading to a slowdown in manufacturing activity. The RBNZ has kept rates steady but in this type of environment they will need to maintain and possibly consider increasing stimulus. The U.S. dollar on the other hand is poised for further gains. Friday’s U.S. retail sales report is important for the dollar but unless spending contracts sharply, it will not alter the market’s expectations for Fed policy. In other words, we don’t expect U.S. consumer spending activity to pose a major threat to the dollar. In fact with average hourly earnings on the rise and payrolls increasing more than expected, chances are the report will breathe new life into the dollar. There has been nothing to change the Fed’s motivation and conviction to raise interest rates next month since the last monetary policy meeting. Tomorrow’s initial jobless claims report should verify the ongoing recovery in the labor market while Fed Presidents Bullard, Evans and Dudley will most likely say that they may not be opposed to a rate hike in December, which is a live meeting.

Technically despite the recent pause, NZD/USD is in a clear downtrend. If 65 cents is broken the currency pair is poised for a move down to 0.6350. If it rallies the 50% Fibonacci retracement of the August to October rally at 0.6555 will cap gains.

Chart Of The Day

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