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  • NZD/USD has been consolidating above the trend line but the price action is reflecting the market’s cautionary approach n the bid from here ahead of the RBNZ and FOMC feast that comes mid-week (Daily  doji).
  • Currently,  NZD/USD trading at 0.6642 and town from 0.6675 highs, up from 0.6636.  

NZD/USD is consolidating around a mixed outlook for the greenback. The bird, again, was traded around external factors having taken up the GDP beat and riding that as about as far as it can before the RBNZ on Thursday that follows the FOMC.  In its August policy  statement  the  RBNZ  said that “we expect to keep the OCR at this level through 2019 and into 2020, longer than we projected in our May Statement”.   The strength of the Q2 GDP release will prove a test to this outlook.  A hawkish Fed is keeping the large long speculative positions intact in the greenback as bears keep away like a campfire, lurking in the background waiting to pile in for a feast on anything uber-dovish in the dots and median forecasts.  

However, in the case of the antipodeans, the poor Chinese outlook and the  weakening CNH is a dark shadow while EM-FX is a ticking time bomb and the complacency in the markets around the increasing escalation in trade wars is something that the FOMC and RBNZ could well address this meeting around   –  “In view of headwinds in the form of slowing Chinese growth and low business confidence, we expect no policy change in the coming months,” analysts at Rabobank explained. As far the Yuan goes, we may not have seen anything yet with respect to the downside as the Chinese use it as a weapon when running out of  US goods to tax.    

RBNZ preview: (Dominick Stephens, an analyst at Westpac offers some key bullet point outlooks).

  • We expect the  RBNZ  will leave the OCR unchanged at next week’s OCR Review.
  • However, there is still a one in three chance that the  RBNZ  cuts the OCR over the coming  year.
  • We expect the tone of the OCR Review to be either neutral or dovish from a market point of view.
  • A neutral Review would simply restate that the next move could be “up or down.”
  • The other possibility is that the  RBNZ  adopts a “soft” easing bias, explicitly warning that if the economy fails to accelerate as expected, the OCR could fall.
  • This would match  RBNZ  comments made in the media, and would be in the spirit of open and frank communication that the  RBNZ  has  embraced.
  • It seems very unlikely that the  RBNZ  will issue a hawkish statement that causes interest rates and the exchange rate to rise. The balance of risks for next week’s OCR Review is in the direction of lower interest rates and a lower exchange rate.

NZD/USD levels

Support is located at 0.6620 and resistance is located at 0.6720. The bird remains cosolidated below the doji at 0.6680 and bulls need a meaningful continuation and 0.6840/50 comes into the  picture is the pair can break and hold above 0.6720.   First, the pair needs  to break  0.6711 as the 76.4% retracement of the daily downtrend from 0.7393. However, on a correction of the uptrend, a drop back into the downside  opens a continuation risk towards  0.6500 that would open up 0.6344 and 0.6306 on the wide.