Yahoo Finance AUD/USD and NZD/USD Fundamental Daily Forecast – Despite Recent Strong Performance, Kiwi is Still Long-Term Bearish
The New Zealand Dollar clawed back from earlier losses to turn higher late in the session on Tuesday. Most of the early selling was related to a bearish technical chart pattern, and rising Treasury yields which made the U.S. Dollar a more attractive investment.
At 2040 GMT, the NZD/USD is trading .6842, up 0.0004 or +0.06%. Earlier in the session, the Forex pair plunged to .6806 on heavily selling pressure.
On the data front, there was no domestic economic news to speak of. In China, year over year Consumer Inflation came in at 1.9%, matching the estimate and slightly besting the 1.8% previous reading. A report on Producer Inflation showed a much stronger 4.7% reading. It beat the 4.5% estimate and the 4.1% previous read.
According to Reuters, China’s producer inflation reached a six-month high in June, lifted by strong commodity prices and threatening to put more pressure on the country’s exporters as a trade war escalates between Washington and Beijing.
Despite the threat of an escalation of the trade dispute between the U.S. and China, the NZD/USD has enjoyed a strong rally since July 3. The bottom at .6688 corresponded with a possible “intervention” by the People’s Bank of China, designed to prop up the Yuan.
Throughout the rally which may have ended on July 9 at .6859, experts have cited other factors for the Kiwi’s strength including weaker-than-expected average hourly wages in Friday’s U.S. Non-Farm Payrolls report, which actually slightly lower the chances of a fourth rate hike by the Fed in December. A drop in U.S. Treasury yields also helped fuel the short-covering rally in the NZD/USD.
Yes, it is a short-covering rally because the main trend is still down. The major bearish theme is still intact also despite the recent impressive performance by the currency. If you trade Forex markets long enough, you’ll realize that even in the steepest of downtrends, there are periodic position-adjustments due to profit-taking and technically oversold conditions. This is what we have been experiencing since July 3 so don’t read into it, or think you may have missed a major bottom.
Looking at the broader picture, the divergence in monetary policy between the hawkish U.S. Federal Reserve and the dovish Reserve Bank of New Zealand is driving the price action. Recently, the RBNZ suggested it may not raise interest rates until late 2019 or early 2020. Additionally, it did not eliminate the possibility of another rate cut.
New Zealand monetary policy is expected to continue to act as a headwind for the dollar. The RBNZ monetary policy remained on hold and the June official cash review came across as slightly more dovish than the May Monetary Policy Statement.
The bank said the OCR would remain at 1.75% “for now”, having previously said “for some time.” Additionally, the market now priced in, for the first time since the end of the easing cycle, a small chance of a rate cut over the next six months.
These are the reasons why we’re still bearish on the NZD/USD and will be treating this current short-covering rally as another opportunity to get short.
This article was originally posted on FX Empire
