NZD/USD – New Zealand Dollar Edges Lower, NZ Dairy Auction Next

The New Zealand dollar has posted slight losses on Tuesday, erasing the gains from the Monday session. The pair is trading slightly below the 0.72 line in the North American session. On the release front, New Zealand data impressed, as NZIER Business Confidence surged to 19 points and Commodity Prices posted a strong gain of 3.7%. In the US, today’s highlight is US Factory Orders. We’ll also hear from FOMC Member William Dudley. On Wednesday, the Federal Reserve will release the minutes of its June policy meeting.

The New Zealand business sector is brimming with confidence, according to the latest indicators. The NZIER Business Confidence report surged to 19 points in the second quarter, compared to just 2 points in the first quarter. This comes on the heels of the monthly ANZ Business Confidence report, which jumped to 20.2 points in June, its best showing in five months. The construction sector is booming, thanks to a hot housing markets, and the services sector is strong. There was more positive news as Commodity Prices indicator climbed 3.7%, its strongest gain since October 2015. Despite the positive releases, the New Zealand dollar posted losses, as Brexit concerns are weighing on the New Zealand currency. One area of concern is the dairy industry, as dairy prices remain depressed. Later on Tuesday, we’ll get a look at the bi-weekly dairy auction prices. The previous reading disappointed, with a flat reading of 0.0 percent.

Market focus on whether the Federal Reserve would raise rates has understandably shifted to the back-burner since the Brexit vote in late June. The historic referendum has had economic repercussions across the globe, including the US. What will be the effect of Brexit on US monetary policy? It may be too early too tell, but some analysts have said that the Fed might change stance and actually lower rates this year. The markets will be keenly interested in the Fed minutes, which will be released on Wednesday, although they will have preceded the Brexit vote. Fed Chair Janet Yellen and her colleagues have sounded cautious about the US economy, and the financial instability caused by Brexit could delay any rate hikes until 2017. The US economy is in good shape, but the Fed hasn’t raised rates since last December and is unlikely to seriously consider any rate hikes unless employment and inflation numbers point upwards.

The Brexit vote to leave the European Union continues to cause deep instability in Europe and the UK and wiped out a staggering $3 trillion from global stock markets. Although the financial markets have stabilized, the British pound has shed about 11 percent since the vote, and is trading at 30-year lows. British politicians have sought to calm the public and the markets, but the pound’s free-fall underscores that the situation is anything but normal. The country’s political picture is in flux, as the Conservatives are choosing a new leader to replace Prime Minister Cameron and elections may follow later in the year. On the financial front, the pound has taken a beating and London’s position as a world financial center could be in jeopardy. Last week, the normally even-keel BoE Governor Mark Carney was surprisingly blunt, stating that the BoE planned to lower interest rates during the summer, and this will only add pressure on the battered UK financial sector.

Britain may have voted “Out”, but there is no timetable as to when the exit will take place or what type of trade agreement will define the new economic relationship between the EU and Britain. British leaders are in no rush to leave, but European leaders have called on Britain to exit as soon as possible in order to minimize the uncertainty and instability caused by the Brexit vote. When it comes to the EU, Britain finds itself in limbo (“neither in nor out”), and such uncertainty could continue to weigh on risk currencies like the New Zealand dollar until some decisions are reached regarding Britain’s exit from the EU.

NZD/USD Fundamentals

Monday (July 4)

• 18:00 New Zealand NZIER Business Confidence. Actual 19 points
• 21:00 New Zealand ANZ Commodity Prices. Actual 3.7%

Tuesday (July 5)

• 10:00 US Factory Orders. Estimate -0.8%
• 10:00 US IBD/TIPP Economic Optimism. Estimate 49.3
• 14:30 US FOMC Member William Dudley Speaks
• Tentative – New Zealand GDT Price Index

Upcoming Key Events

Wednesday (July 6)

• 10:00 US ISM Non-Manufacturing PMI. Estimate 53.3
• 14:00 US FOMC Meeting Minutes

*Key releases are highlighted in bold

*All release times are EDT

NZD/USD for Tuesday, July 5, 2016

NZD/USD July 5 at 8:40 EDT

Open: 0.7213 Low: 0.7175 High: 0.7221 Close: 0.7178

NZD/USD Technical

• NZD/USD posted slight losses in the Asian session. The pair was choppy in European trade and is steady in the North American session
• 0.7100 is providing support
• There is resistance at 0.7231
• Current range: 0.7100 to 0.7231

Further levels in both directions:

• Below: 0.7100, 0.7011, 0.6897 and 0.6793
• Above: 0.7231, 0.7319 and 0.7454

OANDA’s Open Positions Ratio

NZD/USD ratio is unchanged on Tuesday, consistent with the lack of movement from NZD/USD. Long positions command a strong majority (58%), indicative of trader bias towards NZD/USD reversing directions and moving 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.