Forex Market: NZD/USD trading outlook for September 19th 2016

Friday’s trade (in GMT terms) saw NZD/USD within the range of 0.7254-0.7333. The pair closed at 0.7264, retreating 0.72% compared to Thursdays close. It has been the 10th drop in the past 23 trading days. The daily high has been a level unseen since September 13th, when a high of 0.7366 was registered. In weekly terms, NZD/USD lost 0.81% of its value during the current week. It has been the 18th drop in the past 37 weeks and also the steepest one since the week ended on August 7th. The major pair has pared its advance to 0.19% so far during the current month, following three consecutive months of gains. In August NZD/USD went up 0.58%.

On Monday (September 19th) NZD/USD trading may be influenced by the following macroeconomic reports as listed below.

Fundamentals

New Zealand

Westpac Consumer Confidence Index

At 22:00 GMT on Sunday (September 18th) the Westpac Banking Corporation is to report on consumer confidence in New Zealand during the three months to September. The corresponding index came in at a reading of 106.0 in Q2, down from 109.6 in the previous quarter. It has been the lowest index level since Q3 2015. During the three-month period to June 2016, households in New Zealand were less pessimistic about their current financial position, with the respective sub-index improving to -1.3 from -3.2 in Q1. However, pessimism about the nation’s economic development grew. The gauge reflecting the 1-year economic outlook slumped to -1.3 in Q2 from 1.4 in Q1, while that reflecting the 5-year outlook dropped to 7.2 in Q2 from 16.8 in the prior quarter. Lower confidence suggests a lesser willingness to spend and would usually mount selling pressure on the domestic currency.

United States

NAHB Housing Market Index

The National Association of Home Builders (NAHB) Housing Market Index probably remained steady at a reading of 60.0 in September, according to market expectations. If so, September would be the 27th consecutive month, when the gauge stood in the area above 50.0. In August, the sub-index of sales expectations rose to a level of 67.0 from 66.0 in the prior month, the gauge of buyer traffic slipped to 44.0 from 45.0 in July, while the gauge of current sales conditions went up to 65.0 from 63.0 in July.

The indicator is based on a monthly survey in regard to current home sales and expected sales in the coming six months. Values above the key level of 50.0 indicate that housing market conditions are good. Therefore, higher-than-projected readings would provide a moderate support to the US dollar. The official report is scheduled for release at 14:00 GMT.

US Dollar Index reaches 2.5-week highs, near-term interest rate expectations unchanged

The greenback gained ground sharply against its major peers on Friday, despite a mixed set of macroeconomic data, which came out of the United States. The initial spike came after the US Bureau of Labor Statistics reported consumer prices rose at a monthly rate of 0.2% in August, while exceeding the median forecast by analysts, following a flat performance in July. Additionally, annualized consumer inflation in the country was reported to have accelerated to 1.1% in August, again outstripping market expectations, from 0.8% in July. It has been the highest inflation rate in four months, supported by higher cost of shelter, medical care and transportation. Annualized core inflation, which does not take into account cost of food and energy, accelerated to 2.3% in August from 2.2% in July, while the market consensus pointed to a stable performance.

A separate report by Thomson Reuters/University of Michigan revealed that consumer sentiment in the United States remained flat in September. The preliminary reading of the corresponding gauge remained steady at 89.8 in September, below the median forecast by experts of 90.8, as the sub-index of current conditions dropped, while the barometer of future expectations in regard to the entire economy rose. The figure seemed to have had little effect on the US Dollar.

However, disappointing retail sales and industrial production figures from Thursday still weighed on investor expectations that the Federal Reserve will take action on interest rates at the upcoming policy meeting next week. On the other hand, rate hike probability regarding December rose above 50% once again.

According to CME’s FedWatch Tool, as of September 16th, market players saw a 12.0% chance of a rate hike occurring at the Federal Reserve’s policy meeting in September, or unchanged compared to the prior business day, and a 21.1% chance of a hike in November, also unchanged compared to the preceding day. As far as the December meeting is concerned, the probability of such a move was seen at 54.4% on September 16th, up from 47.5% in the preceding business day.

The US Dollar Index, a gauge reflecting the relative strength of the greenback against a basket of 6 other major currencies, closed at a level of 96.06 on Friday, soaring 0.82% from a day ago. During the trading day the index went up as high as 96.12, or a level unseen since September 1st. The gauge has neutralized earlier losses and is now up 0.05% so far in September, following a 0.54% advance in August.

Correlation with other Majors

Taking into account the business week ended on September 16th and the daily closing levels of the major currency pairs, we come to the following conclusions in regard to the strength of relationship:

NZD/USD to AUD/USD (0.9234, or very strong)
NZD/USD to GBP/USD (0.7298, or strong)
NZD/USD to EUR/USD (0.4918, or moderate)
NZD/USD to USD/CHF (-0.7487, or strong)
NZD/USD to USD/CAD (-0.8650, or very strong)
NZD/USD to USD/JPY (-0.9248, or very strong)

1. During the examined period NZD/USD moved almost equally in one and the same direction with AUD/USD.

2. NZD/USD moved strongly in one and the same direction with GBP/USD during the week, while moving strongly in the opposite direction compared to USD/CHF.

3. NZD/USD moved almost equally in the opposite direction compared to USD/CAD and USD/JPY during the period in question. This relationship has been the most pronounced between NZD/USD and USD/JPY.

Bond Yield Spread

The yield on New Zealands 2-year government bonds went as high as 1.985% on September 16th, after which it closed at 1.965% to add 1.5 basis points (0.015 percentage point) compared to September 15th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.778% on September 16th, after which it fell to 0.770% at the close to add 3.6 basis points (0.036 percentage point) compared to September 15th.

The spread between 2-year New Zealand and 2-year US bond yields, which reflects the flow of funds in a short term, narrowed to 1.195% on September 16th from 1.216% on September 15th.

Daily, Weekly and Monthly Pivot Levels

By employing the Camarilla calculation method, the Monday levels of importance for NZD/USD are presented as follows:

R1 – 0.7271
R2 – 0.7278
R3 (Range Resistance – Sell) – 0.7286
R4 (Long Breakout) – 0.7307
R5 (Breakout Target 1) – 0.7333
R6 (Breakout Target 2) – 0.7343

S1 – 0.7257
S2 – 0.7250
S3 (Range Support – Buy) – 0.7242
S4 (Short Breakout) – 0.7221
S5 (Breakout Target 1) – 0.7195
S6 (Breakout Target 2) – 0.7185

By using the traditional method of calculation, the weekly levels of importance for NZD/USD are presented as follows:

Central Pivot Point – 0.7288
R1 – 0.7342
R2 – 0.7419
R3 – 0.7473
R4 – 0.7526

S1 – 0.7211
S2 – 0.7157
S3 – 0.7080
S4 – 0.7002

In monthly terms, for NZD/USD we have the following pivots:

Central Pivot Point – 0.7239
R1 – 0.7392
R2 – 0.7533
R3 – 0.7686
R4 – 0.7838

S1 – 0.7098
S2 – 0.6945
S3 – 0.6804
S4 – 0.6662