Yesterday’s trade saw NZD/USD within the range of 0.6753-0.6819. The pair closed at 0.6764, falling 0.35% on a daily basis. The daily high has been the highest level since October 23rd, when the cross registered a high of 0.6873. In weekly terms, NZD/USD lost 0.85% last week, marking its first drop in the past four weeks. It has been the sharpest weekly decline since the week ended on September 6th, when the pair slumped 2.79%.
At 8:00 GMT today NZD/USD was losing 0.49% for the day to trade at 0.6731. The pair touched a daily low at 0.6719 at 5:50 GMT, testing the lower range breakout level (S4), but it did not show consistent closing below it. NZD/USD has been trading in a relatively tight area around the S4 level for the past several hours. The daily low has been the lowest level since October 22nd, when a low of 0.6694 was reached. It may serve as a potential level of support.
Today NZD/USD trading may be influenced by the events listed below.
Fundamentals
New Zealand
RBNZ policy decision
The Reserve Bank of New Zealand (RBNZ) will probably leave its benchmark interest rate (the official cash rate) on hold at 2.75% at the policy meeting today, according to market expectations. In September the central bank reduced its benchmark by 0.25% to 2.75% for a third consecutive policy meeting this year, while indicating further rate cuts seem likely due to softening economy and inflation rate still running below the banks target.
According to extracts from the statement, taken by RBNZ Governor, Graeme Wheeler, following the banks most recent policy decision: ”…the economy is adjusting to the sharp decline in export prices, and the consequent fall in the exchange rate. Activity has also slowed due to the plateauing of construction activity in Canterbury, and a weakening in business and consumer confidence. The economy is now growing at an annual rate of around 2 percent.”
”Several factors continue to support growth, including robust tourism, strong net immigration, the large pipeline of construction activity in Auckland and other regions, and, importantly, the lower interest rates and the depreciation of the New Zealand dollar. While the lower exchange rate supports the export and import-competing sectors, further depreciation is appropriate, given the sharpness of the decline in New Zealand’s export commodity prices.”
”Headline CPI inflation remains below the 1 to 3 percent target due to the previous strength in the New Zealand dollar and the halving of world oil prices since mid- 2014.”
”A reduction in the OCR is warranted by the softening in the economy and the need to keep future average CPI inflation near the 2 percent target midpoint. At this stage, some further easing in the OCR seems likely. This will depend on the emerging flow of economic data.”
In case the Reserve Bank of New Zealand is dovish about inflationary pressure and overall economic activity and, thus, decides either to maintain, or to further reduce its benchmark rate, this will have a moderate-to-strong bearish effect on the kiwi dollar.
United States
FOMC policy decision
The Federal Open Market Committee (FOMC) will probably keep its target for the federal funds rate unchanged within the range 0%-0.25% for a 54th consecutive meeting, according to the median forecast by experts.
In September the Committee left borrowing costs intact, as macroeconomic conditions, which would warrant a hike, had not yet been met, but were approaching. The Minutes from the Federal Reserves most recent policy meeting revealed officials expressed concerns recent global and financial market developments might pose constraints to US economic activity.
According to extracts from the minutes of the FOMCs September meeting: ”…members judged that information received since the FOMC met in July indicated that economic activity was expanding at a moderate pace. Although net exports remained soft, economic growth was broadly based. Members noted that recent global and financial market developments might restrain economic activity somewhat as a result of the higher level of the dollar and possible effects of slower economic growth in China and in a number of emerging market and commodity-producing economies.”
”In assessing whether economic conditions had improved sufficiently to initiate a firming in the stance of policy, many members said that the improvement in labor market conditions met or would soon meet one of the Committees criteria for beginning policy normalization. But some indicated that their confidence that inflation would gradually return to the Committees 2 percent objective over the medium term had not increased, in large part because recent global economic and financial developments had imparted some restraint to the economic outlook and placed further downward pressure on inflation in the near term.”
”…all but one member concluded that, although the U.S. economy had strengthened and labor underutilization had diminished, economic conditions did not warrant an increase in the target range for the federal funds rate at this meeting.”
The FOMC will announce its official decision on policy at 18:00 GMT. In case a rate hike is introduced, this will certainly cause a strong bullish impact on the US dollar.
Bond Yield Spread
The yield on New Zealand’s 2-year government bonds went as high as 2.565% on October 27th, or the highest level since October 23rd (2.570%), after which it slid to 2.550% at the close to gain 0.005 percentage point on a daily basis. It has been the first drop in the past four trading days.
The yield on US 2-year government bonds climbed as high as 0.641% on October 27th, after which it closed at 0.625% to lose 1.2 basis points (0.012 percentage point) compared to October 26th. It has been the second trading day of decrease in a row.
The spread between 2-year New Zealand and 2-year US bond yields, which reflects the flow of funds in a short term, expanded to 1.925% on October 27th from 1.908% on October 26th. The October 27th yield spread has been the highest one since October 22nd, when the difference was 1.950%.
Meanwhile, the yield on New Zealand’s 10-year government bonds soared as high as 3.355% on October 27th, or the highest level since October 23rd (3.360%), after which it slid to 3.350% at the close to appreciate 1.5 basis points (0.015 percentage point) compared to October 26th, while marking a second straight trading day of increase.
The yield on US 10-year government bonds climbed as high as 2.060% on October 27th, after which it slipped to 2.042% at the close to lose 1.6 basis points (0.016 percentage point) compared to October 26th. It has been the second trading day of decrease in a row.
The spread between 10-year New Zealand and 10-year US bond yields widened to 1.308% on October 27th from 1.277% on October 26th. The October 27th yield difference has been the most notable one since October 22nd, when the spread was 1.327%.
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for NZD/USD are presented as follows:
R1 – 0.6770
R2 – 0.6777
R3 (range resistance) – 0.6782
R4 (range breakout) – 0.6800
S1 – 0.6758
S2 – 0.6752
S3 (range support) – 0.6746
S4 (range breakout) – 0.6728
By using the traditional method of calculation, the weekly pivot levels for NZD/USD are presented as follows:
Central Pivot Point – 0.6774
R1 – 0.6853
R2 – 0.6953
R3 – 0.7032
S1 – 0.6674
S2 – 0.6595
S3 – 0.6495
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