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  • NZD/USD recovered from a bout of early US session weakness and is back above the 0.7150 mark.
  • Higher dairy prices have helped NZD perform well despite the stronger US dollar, as traders await key jobs data.

NZD/USD saw a bout of weakness around the time of the US cash equity open, dropping below a key level of support that had been in play since last Friday at 0.7150. The pair fell as low as the 0.7130 mark, but soon recovered these losses and is now trading flat again on the day, just to the north of the 0.7150 mark. Should the bears regain control, the key area of support to be aware of to the downside is around the 0.7100 level (the 18 and 28 January lows).

Driving the day

NZD performed well on Tuesday despite strength in the US dollar that weighed on pronounced weakness in the kiwi’s antipodean counterpart AUD. The Aussie was weighed by a more dovish than expected RBA rate decision outcome, with the bank surprised markets with an announcement that its QE programme will be extended beyond April at a pace of AUD 5B per month. Perhaps the more dovish than expected RBA outcome highlighted the recent shift in market expectations towards RBNZ policy; markets are no longer betting that New Zealand’s central bank will ease policy any further (this cycle) or take rates into negative territory. This means that, with the RBNZ’s OCR rate at 0.25%, New Zealand is set to maintain a 0.15% central bank interest rate advantage over its antipodean peer.

Elsewhere, Fonterra, New Zealand’s (and the world’s) largest dairy exporter raised the prices it pays farmers for milk amid strong demand for its dairy products in China and Southeast Asia, as well as firmer global dairy prices. Strength in dairy prices was reflected in the latest  GlobalDairyTrade (GDT) numbers; GDT’s Price Index rose 1.8% WoW and whole milk powder rose 2.3% WoW. Strength in dairy prices is a good omen for New Zealand given the economy’s dependence on agricultural (and in particular dairy) exports, hence why NZD is responding well to developments.

Looking ahead, NZD traders are on notice for the release of the Q4 labour market report at 21:45GMT. ANZ think that though incoming Labour market data may be noisy, it will nonetheless provide clarity on the extent of recent deterioration in the labour market. “We expect the unemployment rate to lift to 5.6%, with risks tilted to slightly higher,” says the bank. Moreover, the bank comments that “wage growth is expected to remain soft, but strength in some industries is likely given skills shortages and the two-speed nature of the economy at present”.

NZD/USD key levels