New Zealand Dollar to Remain Pressured By Looming Rate Cuts

[DailyFx]

Last week saw a bit of positive data out of the beleaguered New Zealand economy. Still, the NZ Dollar failed to end the week with some meaningful upside momentum as the specter of deep cuts to the benchmark interest rate loom on the horizon. With the outlook on borrowing costs established, traders will pay little heed to the data flow until they have reason to believe the RBNZ has changed its tune.






Fundamental Outlook For New Zealand Dollar: Bearish

- Food Prices fall sharply in July, support RBNZ interest rate cuts
- New Zealand imports jump 10.5% on demand for consumer goods, give hope to ailing economy
- August Business Confidence recovers on expectations of monetary easing

Last week saw a bit of positive data out of the beleaguered New Zealand economy. Still, the NZ Dollar failed to end the week with some meaningful upside momentum as the specter of deep cuts to the benchmark interest rate loom on the horizon. The market is pricing in a whopping 139 basis points of monetary easing in the next 12 months, with the first move to come as soon as the third quarter of this year. To that effect, next week’s singular release of Augusts’ ANZ Commodity Price Index is unlikely to be reflected in Kiwi price action. Interest rate expectations are the single most important factor guiding the direction of exchange rates, with other economic data being useful in the sense that it helps to forecast where monetary policy will go. With the outlook on borrowing costs established, traders will pay little heed to the data flow until they have reason to believe the RBNZ has changed its tune.

Technically speaking, last week saw the precipitous decline of the New Zealand dollar find support at a long-term trend line in place since September 2001. Prices then retraced to support-turned-resistance at the bottom of a channel that had contained the downtrend since mid-March and turned lower once again. Trend line support is reinforced by the 61.8% Fibonacci retracement of the 06/28/06-02/27/08 rally at 0.6808. A daily close below this level to target the 76.4% level at 0.6468.