Forex Market: NZD/USD daily trading forecast

Yesterday’s trade saw NZD/USD within the range of 0.7480-0.7406. The pair closed at 0.7450, gaining 0.31% on a daily basis.

At 7:43 GMT today NZD/USD was up 0.09% for the day to trade at 0.7458. The pair held in a daily range of 0.7424 – 0.7482.

Fundamentals

New Zealand

RBNZ policy decision

The Reserve Bank of New Zealand (RBNZ) will probably leave its benchmark interest rate (the official cash rate) without change at 3.50% at the policy meeting today, according to market expectations. The central bank raised borrowing costs by 25 basis points (0.25%) to the current 3.50% at the July 23rd meeting, which marked the fourth consecutive increase in rates during 2014.

In December the central bank left borrowing costs intact, stressing on softer economic growth, low inflation pressure and global uncertainty. According to extracts from the statement, taken by RBNZ Governor, Graeme Wheeler, following the banks most recent policy decision: ”New Zealand’s economic growth is running at an annual rate of around 3½ percent. While dairy prices have declined sharply, domestic demand has retained momentum, supported by the ongoing growth in consumption and construction activity. Interest rates are low by historical standards and continue to support domestic demand.”

”CPI inflation remains modest, at 1 percent in the year to September. Weak global inflation, falls in international oil prices and the high exchange rate are the main influences. Inflation in the non-tradeables sector remains subdued with capacity pressures having less impact than usual.

Growth is expected to remain at or above trend through 2016, with unemployment continuing to decline. Modest inflation pressures suggest the expansion can be sustained for longer than previously expected with a more gradual increase in interest rates.”

”With output projected to grow at or above capacity, CPI inflation is expected to approach the 2 percent midpoint of the Reserve Bank’s target range in the latter part of the forecast period. Some further increase in the OCR is expected to be required at a later stage.”

Short-term interest rates are of utmost importance for the valuation of national currencies. In case the Reserve Bank of New Zealand is dovish about inflationary pressure and overall economic activity and, thus, decides to maintain its benchmark rate, this would certainly have a bearish effect on the kiwi dollar.

The official decision on policy is expected at 20:00 GMT.

Balance of trade

The deficit on New Zealands balance of trade probably narrowed to NZD 26.5 million in December, marking a sixth consecutive month of deficit, according to expectations, from a trade gap of NZD 213 million in November. The latter has been the smallest November deficit since 2010. Total goods exports dropped at an annualized rate of 9.5% to NZD 4.0 billion in November, while total imports were down 1.3% to NZD 4.2 billion. Dairy exports were the main driver behind lower overall shipments, as they plunged 27% year-on-year.

In case a smaller-than-projected trade deficit was posted, the local dollar would receive support, as New Zealand is to a great extent dependent on international trade. The Statistics New Zealand is to release the official trade data at 21:45 GMT.

United States

FOMC policy decision

The Federal Open Market Committee (FOMC) will probably keep its benchmark interest rate unchanged within the range 0%-0.25% for a 48th consecutive meeting, after the end of the Quantitative Easing cycle in October 2014, according to the median forecast by experts.

The minutes from the Federal Open Market Committee meeting, conducted in December, revealed that policymakers agreed borrowing costs were unlikely to rise for at least the next couple of meetings. The Committee said it will be ”patient” to begin normalizing policy. According to extracts from the minutes: ”Many participants regarded the international situation as an important source of downside risks to domestic real activity and employment, particularly if declines in oil prices and the persistence of weak economic growth abroad had a substantial negative effect on global financial markets or if foreign policy responses were insufficient. However, the downside risks were seen as nearly balanced by risks to the upside.”

”With regard to inflation, a number of participants saw a risk that it could run persistently below their 2 percent objective, with some expressing concern that such an outcome could undermine the credibility of the Committees commitment to that objective. Some participants were worried that the recent substantial fall in energy prices could lead to a reduction in longer-term inflation expectations, while others were concerned that the decline in market-based measures of inflation compensation might reflect, in part, that such a decline had already begun.”

”Most participants agreed that it would be useful to state that the Committee judges that it can be patient in beginning to normalize the stance of monetary policy; they noted that such language would provide more flexibility to adjust policy in response to incoming information than the previous language, which had tied the beginning of normalization to the end of the asset purchase program. This approach was seen as consistent, given the Committees assessment of the economic outlook at the current meeting, with the Committees previous statement. Most participants thought the reference to patience indicated that the Committee was unlikely to begin the normalization process for at least the next couple of meetings.”

The FOMC will announce its official decision on policy at 19:00 GMT.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 0.7445. In case NZD/USD manages to breach the first resistance level at 0.7485, it will probably continue up to test 0.7519. In case the second key resistance is broken, the pair will probably attempt to advance to 0.7559.

If NZD/USD manages to breach the first key support at 0.7411, it will probably continue to slide and test 0.7371. With this second key support broken, the movement to the downside will probably continue to 0.7337.

The mid-Pivot levels for today are as follows: M1 – 0.7354, M2 – 0.7391, M3 – 0.7428, M4 – 0.7465, M5 – 0.7502, M6 – 0.7539.

In weekly terms, the central pivot point is at 0.7567. The three key resistance levels are as follows: R1 – 0.7705, R2 – 0.7952, R3 – 0.8090. The three key support levels are: S1 – 0.7320, S2 – 0.7182, S3 – 0.6935.