- China’s PMI, RBNZ’s Bascand stopped markets to cheer US-China agreement to talk trade issues.
- China and US PMIs are on the radar for fresh impulse.
Despite popping up at the day-start, mainly based on the US-China trade headlines, the NZD/USD fails to stretch earlier gains as RBNZ’s Deputy Governor (Financial Stability) Geoff Bascand highlights the scope for further easing in LVR if risks decline. Markets took his comments as a cautious statement highlighting risk sentiment.
With this, the Kiwi pair takes the rounds to a fresh 10-week high of 0.6722 amid initial Asian session on Monday.
The US and China finally shook their hands at the end of G20 and agreed to put a halt on further trade war by restarting the negotiations. Notable points were the US President Donald Trump’s likely willingness to release some pressure off China’s Huawei and stop levying further tariffs in return of higher farm imports from the dragon nation.
However, the key details concerning intellectual property rights and technology transfer kept remaining unresolved.
During his comments on macroprudential policy, Reserve Bank of New Zealand’s (RBNZ) Bascand said that “the Reserve Bank’s loan-to-value ratio (LVR) restrictions have been successful in reducing some of the risk associated with high household indebtedness. Our analysis showed that as a result of introducing the LVR policy, the resilience of the banking system has increased, while side effects have been limited, and that’s a good outcome.” He further mentioned that additional easing in LVRs is possible if risks decline, which requires continuing subdued growth in credit and house prices and banks maintaining prudent lending standards.
Markets took it as a cautious sign and held their Kiwi longs back. Adding to the uncertainty could be recently sluggish prints of China’s official Manufacturing and Non-Manufacturing Purchasing Managers’ Index (PMI). The key activity numbers lagged past 54.5 and 49.5 forecasts to 54.2 and 49.4 respective priors.
Looking forward, China’s Caixin Manufacturing PMI and the US ISM Manufacturing PMI will be followed for fresh impulse. While Chinese manufacturing gauge is expected to flash 50.0 mark compared to 50.2 prior, the US index might weaken to 51.0 from 52.1 during June.
Technical Analysis
Despite recently bright fundamentals, overbought levels of 14-day relative strength index (RSI) might trigger the quote’s pullback from 200-day exponential moving average (200-day EMA) level of 0.6720, which in-turn keeps highlighting 0.6686/82 support-zone comprising highs of June and April-end. Alternatively, mid-April tops surrounding 0.6785 could become bulls’ favorite on the sustained break of 0.6720
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