NZD/USD – Kiwi Steady ahead of Fed, RBNZ Rate Statements

The New Zealand dollar has posted slight gains on Wednesday, as NZD/USD is trading at 0.6520 early in the North American session. In economic news, central banks are at the center of attention, as the US Federal Reserve and Royal Bank of New Zealand will both release rate statements later in the day. Elsewhere, US New Home Sales is expected to improve to 501 thousand, while the markets are predicting a strong improvement from New Zealand Trade Balance, with an estimate of $NZ -130 million.

Janet Yellen and Company are in the spotlight on Wednesday, as the Federal Reserve concludes a two-day meeting and issues a policy statement. The Fed is expected to maintain interest rates at the current level of 0.25%. Economic conditions have changed significantly since the Fed raise rates in mid-December, with global stock markets down and oil prices sharply lower since the historic rate hike in December. According to Morgan Stanley Morgan chief economist Ellen Zentner, financial conditions have tightened by the equivalent of four rate hikes, so the Fed could hold off from further tightening until mid-2016 or even later. The January statement could well be a balancing act, with the Fed acknowledging weaker economic conditions in the US while emphasizing that the economy is still growing and moving in the right direction. The collapse of oil prices has contributed to the weak inflation picture in the US, with current inflation levels well below the Fed target of 2.0%. Low inflation, indicative of slack in the economy, remains a significant concern for Fed policymakers, who are unlikely to approve another rate hike without an upturn in inflation. Traders should be prepared for possible volatility in the currency markets following the Fed policy statement.

After the Fed rate statement, the RBNZ will follow suit and set the benchmark rate. The central bank has not been shy about cutting interest rates, having done so four times in 2015. The most recent move took place in December, with a cut from 2.75% to 2.50%, but no change is expected in the upcoming rate decision. We’ll also get a look at New Zealand Trade Balance, with the markets expecting a huge drop in the deficit, with an estimate of NZ $-130 million. A strong improvement in the deficit could bolster the struggling New Zealand dollar.

NZD/USD Fundamentals

Wednesday (Jan. 27)

• 10:00 US New Home Sales. Estimate 501K
• 10:30 US Crude Oil Inventories. Estimate 3.8M
• 14:00 FOMC Statement
• 14:00 Federal Funds Rate. Estimate <0.50%
• 15:00 New Zealand Official Cash Rate. Estimate 2.50%
• 15:00 New Zealand Rate Statement
• 16:45 New Zealand Trade Balance. Estimate -130M

Upcoming Key Events

Thursday (Jan. 28)

• 8:30 US Core Durable Goods Orders. Estimate 0.0%
• 8:30 US Unemployment Claims. Estimate 281K

*Key releases are highlighted in bold

*All release times are EST

NZD/USD for Wednesday, January 27, 2016

NZD/USD January 27 at 9:20 GMT

Open: 0.6509 Low: 0.6471 High: 0.6530 Close: 0.6519

NZD/USD Technical

• NZD/USD showed limited movement in the Asian session and posted slight gains in European trade
• There is resistance at 0.6605
• 0.6449 is providing support

Further levels in both directions:

• Below: 0.6449, 0.6344, 0.6233 and 0.6152
• Above: 0.6605, 0.6738 and 0.6897

OANDA’s Open Positions Ratio

In the NZD/USD ratio, short positions posted have gained ground, consistent with the pair posting considerable ground on Tuesday. This led to long positions being covered. Long positions still maintain a slight majority (53%), which is indicative of trader bias towards the pair continuing to push higher.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.