NZD/USD – No Bottom in Sight

NZD/USD – No Bottom in Sight

NZD/USD – No Bottom in Sight

Between the latest FOMC statement and recent comments from RBNZ Governor Wheeler, NZD/USD should be headed lower. Last night, New Zealand’s central bank head said, “further easing seems likely” and “more substantial NZD depreciation is necessary.” The market honed in on his more upbeat take on growth and inflation but in order for those targets to be achieved, a lower currency and lower interest rates will be needed. So far the RBNZ has unwound 50 of their 100bp of tightening and while there is no need for 3 back to back rate cuts, the economy could certainly use another dose of easing. RBNZ policy remains accommodative and as long as Wheeler is looking for a weaker currency, so will we. Meanwhile today’s FOMC meeting was less hawkish than the market had anticipated but September tightening remains on the table. The Fed indicated that they wanted to see “some further” job market improvement before raising interest rates. With 2 non-farm payrolls report scheduled for release before the September meeting, they could still have the evidence they require to raise rates. Furthermore, their outlook for the economy remains positive with the labor market continuing to improve, solid job gains noted and diminished labor market slack. The divergence between NZ and US policy gives us strong reason to believe that the 0.6498 low set on July 16th will be broken.

Technically, the recent rally in NZD/USD lost momentum not far from the July 10th high of 0.6772. 68 cents is the main resistance level for the pair but this swing high is also important. Support can be seen in the monthly chart included in this note – the 61.8% Fibonacci retracement sits right at 64 cents.

Chart Of The Day

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