Dovish statements from the FED (Federal Reserve) last week in regards to interest rates certainly weighed on the US dollar. We saw the FED come out in December 2015 raise interest rates by 25 basis points and stated will look to raise interest rates another four times throughout 2016. Fast forward 3 months and the FEDs tone has certainly changed. With concerns on Chinese growth and with BOJ (Bank of Japan) dropping interest rates into negative territory and the ECB (European Central Bank) cutting further into negative territory, we have seen the FED take the foot off the pedal.
Even though the US economy is showing signs of strength, robust employment and housing market and the manufacturing sector seemed to have bottomed out, the FED is mainly concerned about the global outlook. The change in stance by the FED has seen the US Dollar weaken against all major currencies. We have see it break below the 200-day SMA and test the 11855 level where it previously was in mid October last year. A break below this support level could see it test the 11730 level.
We had a rough start in the first month and a half of the year but this has been completely reversed. We have seen equity markets, commodities and commodity currencies rally on the back of a weaker US Dollar.
The Focus this Week: NZD Trade Balance.
Last week for the NZD/USD was a rough start to the week as we saw further declines in dairy prices. After reaching a high of $2,824 and now its currently down to $1,974. Dairy prices were down 2.9% from the previous week. The Kiwi certainly picked up with a narrowing deficit in Q4 Balance of Payment and better than expected GDP figures.
This Thursday we have Trade Balance figures being released and it's expected exports to rise 4.01B and imports to remain steady at 3.9B. January Trade Balance posted a surplus, first time in 8 month driven by exports outside the dairy industry. Dairy exports have slumped but has been offset by other goods such as meat, fruit, seafood and wine.
If we see further increases in Trade Balance exports above 4.01B, this will give reason for the NZD/USD to push higher. The RBNZ is expected to drop rates once more later this year, but better than expected news would make RBNZ less likely to drop rates and would be another reason to buy the NZD against the weaker currencies.
Where to for the NZD/USD?
We may see the NZD/USD continue to rise into the December high of 0.6882 but we need to see better than expected Trade Balance Figures and rising oil prices. Construction, Retail Spending and Business Services could make up for the drop in dairy prices. With a stabilizing New Zealand economy we may see the Kiwi against the US Dollar rise to 70c.