The NZDUSD has played in a state of suspension for the most part of July, with prices bouncing within the 0.6550 to 0.6700 territory. I must confess, I do not feel that current prices reflect where the NZDUSD should truly be trading. With the falling commodity prices since July and the increasing value of the USD, a more solid move to the downside was expected. The interest rate cut a few weeks back should have acted as a further catalyst for prices to at least breach and stay below the 0.6550 support.
With the slowdown down in China, the New Zealand economy has taken a hit. It is a major exporter of milk and there has been a slump in dairy prices. In June, prices dropped a strong 23% with whole milk, skimmed milk, cheese and butter following. As economic principle states, an excess supply and diminishing demand are the formulae to see prices drop exponentially. This was the case for New Zealand, hence why interest rates were decreased to protect the domestic business.
Given that interest rates were decreased, more pressure was added to the commodity currency. The interest rate differential and divergence between the monetary policies of the States compared to New Zealand has made the USD strong against the NZD. This does not really reflect that much on the charts.
Sentiment still remains bearish for the NZDUSD with a near $1.3bn CFTC positions from the middle of July. Could this be the reason why the pair has decided to not trade lower? Investors still expect the RBNZ to decrease interest rates throughout this year in order to accommodate internal economic growth and create a weaker NZD which should help exporters.
As for this week, there will be an array of releases which should help the NZDUSD, bears. Employment change and rate on Wednesday are expected to be lower than the revision. As stated earlier, the dropping dairy prices, the housing market and weak expectations for most sectors in addition to the rising unemployment in New Zealand should see prices trade further down. NFP this Friday may act as a catalyst for the impending move.
Focusing back on the technicals, NZDUSD is weak bearish
- Prices are trading below the 20 SMA
- Prices trade below the monthly and weekly pivot
- The MACD trades to the upside.
As long as prices can remain below the trend defining level of 0.6750 which was identified in the previous analysis of the 29th the NZDUSD will still technically remain bearish. The next step needs to be a solid breach below the 0.6550 support. An influx of negative news from New Zealand or positive news from the States may act as a trigger for this to materialise.
Intraday – The hourly timeframe had a strong surge to the upside due to the positive sentiment of the AUD release in the earlier sessions today. The market still looks quite choppy, lacking direction, but a breakout above 0.66100 may open a route to the daily R2 of 0.6630. A move back below the daily pivot of 0.6570 invalidates this intraday bullish view.
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