NZDUSD awakes from its slumber…

<p>The kiwi has received a new lease on life after the release of some encouraging auction results from GlobalDairyTrade, with prices rising 14.8% since the […]</p>

The kiwi has received a new lease on life after the release of some encouraging auction results from GlobalDairyTrade, with prices rising 14.8% since the last auction at the beginning of August. Prices fell at the prior 10 auctions, which fuelled concerns about the health of the commodity-backed NZ economy and dollar. In fact, the concerns were so great that the RBNZ began cutting interest rates earlier this year.

The Reserve Bank of New Zealand (RBNZ) cut interest rates for the first time in four years in June, citing low inflationary pressures and an expected weakening in demand. The NZ dollar was mauled by bears following the bank’s decision to loosen monetary policy, with NZDUSD touching its lowest level in over 4.5 years and the volatility in NZ dollar saw the biggest intraday move in AUDNZD since August 2013.

At its next policy meeting in July the RBNZ cut interest rates by another 25 basis points, but it wasn’t dovish enough for the market. This actually led to a short-term rally in the kiwi immediately after the bank’s policy meeting. NZDUSD attempted to break its ceiling around 0.6450, but ultimately failed to break any major resistance zone and has been trapped below 0.6700 ever since.

However, some recent changes in the outlook for interest rates in NZ and some encouraging economic data is getting kiwi bulls excited; wage growth in NZ was significantly stronger than expected in Q2, which bodes well for inflation, and now dairy prices are rebounding, albeit from a very low base. If this trend continues it may help spark a more meaningful rally in the NZ dollar.

 

NZD/USD

There are some bullish technical signals from NZDUSD which suggest that it may have formed a long-term floor around 0.6500. There is strong bullish divergence between price and RSI on numerous timeframes and price was rejected at the neckline of a recent bearish H&S pattern. It may be a little too early to be overly bullish on NZDUSD, but it’s worth keeping an eye on the pair, especially if it breaks resistance around 0.6655 and then 0.6750.

 

 

NZDUSD

Source: City Index

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