- NZD/USD is one of the worst performers on the day although it is stabilising in recent trade.
- Jam-packed US calendar; The focus, therefore, will be on the US Dollar in the main.
- Global growth threats and the RBNZ should remain a thorn in the side of the Kiwi.
NZD/USD is one of the worst performers on the day, although it is stabilising in recent trade just below the 21-day moving average. The pair is trading at 0.6292 at the time of writing, off some 0.30% having travelled from a high of 0.6321 to a low of 0.6283.
European indices were solid and US benchmarks are robust ahead of a jam-packed week of risk events which include the US and Chinese trade talks, Federal Reserve Governor Powell speaking, the Federal Open Markey Committee’s Minutes and US Consumer Price Index.
The focus, therefore, will be on the US Dollar in the main, but trade talk headlines will dominate the commodity-FX space for which the Kiwi will likely be tangled up within.
The US Dollar has been firm in the US session and when one looks over the positioning data from last week, the USD net longs can be sen to have edged higher for a sixth consecutive week, holding at their highest levels since April 2017.
“Although the Fed did cut interest rates in September as expected, the FOMC are not signalling any further moves this year in its dot-plot. This left a hawkish bias to the policy meeting,”
analysts at Rabobank argued.
“As the dominant currency in the global payments system, a drop in risk appetite can leave the USD well supported and vice versa.”
US-China trade negotiations will be the main event
Powell’s speech and the FOMC minutes will be key, but the US-China trade negotiations will be the main event.
“We expect modest progress on trade talks but more consistent with a delay in tariff implementation than anything comprehensive. There are several low-hanging fruits that both sides can achieve,”
analysts at TD Securities explained.
The case for trade talk progress from the US side
The analysts at TD Securities outlined a bullish scenario considering the recent political and economic developments in the United States, as follows:
“While the odds of a comprehensive deal that tackles lingering structural issues (intellectual property, SOEsubsidies, etc) remain low, the gradual weakening of US data, a falling stock market, and the beginning of an impeachment investigation against President Trump could change the political calculations of the administration. In particular, a slowing manufacturing sector and downbeat demand for agricultural products, which for the most part impacts key swing states, could soften the current “tough” stance against China,”
the analysts explained and argued that this would open the door for additional talks in coming months, increasing the possibility of an interim deal.
“In our view, this would be welcomed by markets, allowing President Trump to score a needed “small win” on the trade front.”
RBNZ to remain a risk for NZD
The NZD is always going to be considered a sell when it boils down to the central banks and the fact that, globally, recession risks have increased. We have seen the RBNZ lead the way when responding by easing monetary policy. More OCR cuts are perhaps on the way as growth and inflation disappoint the RBNZ’s expectations.
We think that by November, the evidence will be clear that a significant growth rebound is not on the horizon, and that the RBNZ will cut the OCR once again,” analysts at ANZ Bank argue.
“We have pencilled in two follow up cuts (February and May) which will take the OCR to just 0.25%.”
The trend is bearish on the daily chart with the price pressured back below the 21-DMA and embarking on a test below the lowest levels since 2015 having already pierced the 61.8% Fibonacci retracement level of the GFC lows in 2009 to recovery double top highs in 2011 and 2014.