NZD / USD higher on sentiment recovery, OCR bets
New Zealand Dollar, NZD / USD, AUD / NZD, Covid, Risk Trends, RBNZ – Talking Points
- New Zealand dollar gains against most peers as global sentiment rallies
- RBNZ rate bets soar as growth concerns over Covid ease
- NZD / USD rebound brings psychological level back to the fore as potential resistance
Thursday’s Asia-Pacific Outlook
Asia-Pacific traders will look to take advantage of the bullish Wall Street session where stocks closed higher, extending a rebound into its second day after a large risk aversion move caused markets to sink. Monday. The benchmark S&P 500 closed 0.82% higher on Wednesday, moving the index less than 1% from last week’s all-time high. The forex market reflects the new buying cycle, with the risk-sensitive New Zealand dollar gaining against most of its major currencies.
The underlying backdrop for the kiwi dollar improved after the The Reserve Bank of New Zealand (RBNZ) decided to end its Large-Scale Asset Purchase Program (LSAP) on July 23. The change in the RBNZ sent bets on the rate hike as traders took the hawkish movement into account. Growing concern over the Delta variant, especially in the Asia-Pacific region, saw those bets ebb earlier this week. But the recovery in global sentiment has revived trade, as evidenced by a rebound in overnight indexed swap (OIS) rates – a derivative instrument used by financial institutions to exploit expectations of a change in the official exchange rate. (OCR).
Yet Australia highlights the growing threat of the Delta strain in the region, as low vaccination rates force policymakers to step up restrictive measures. The bulk of trans-Tasman travel is on hold, with three Australian states under lockdown, accounting for nearly half of the country’s population. New Zealand, on the other hand, remains largely free of community infections. This gives the Kiwi economy an advantage in terms of potential growth over Australia. This disparity is illustrated between the respective exchange rates, with AUD / NZD falling more than 1.5% on the month, the worst monthly performance of this year. Australia’s June retail sales figure sharply misses pulled the currency pair down overnight.
Elsewhere, the strength of the US dollar, driven by strong economic data and bets on the Fed’s rate hike, outperformed the New Zealand dollar this month, although the NZD / USD appears to be gnawing losses after a overnight gain. If risk aversion remains moderate, this will likely bode well for the Kiwi dollar. The economic record for the remainder of this week is void of any high impact events, leaving the prevailing risk trends potentially unchecked. Next week, the island nation’s trade balance numbers cross. The Fed’s rate decision in July could also cause significant volatility in the NZD / USD next week.
Today’s session, however, leaves little to be desired for event trading. Japan will release its investments in foreign bonds for the week ending July 17, and Thailand will see its June trade figures decline. Indonesia is expected to keep rates stable at 3.5%, according to the DailyFX economic calendar. Tonight, rate traders will look into the European Central Bank’s rate decision, which could see a volatile reaction in EUR / USD.
NZD / USD technical outlook:
An overnight rally in NZD / USD brought the psychological level of 0.7000 back to the fore. Prices are on the rise with the 38.2% Fibonacci retracement currently appearing to offer a low degree of resistance. A break above the 0.7000 level would see the fall in the exponential 26-day moving average focus.
Alternatively, a movement lower would threaten to add to a series of lower lows. However, the RSI oscillator has not moved at the same pace as the prices, forming a bullish divergence, suggesting that the bearish momentum is running out.
8-hour chart NZD / USD
Chart created with TradingView
NEGOTIATION RESOURCES in New Zealand dollars
— Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwateron Twitter