NZD/USD – Kiwi Dips Below 66 Line on Weak NZ Dairy Prices

NZD/USD has posted considerable losses on Tuesday and is trading just below the 0.66 line in the North American session. In economic news, New Zealand GDT Index posted a decline of 2.6%. In the US, the Empire State Manufacturing Index posted a dismal reading of -16.6 points, well short of the expectations. We’ll get a look at some key US data on Wednesday, with the release of Building Permits and PPI. As well, the Federal Reserve will publish the minutes of its January policy meeting.

It’s been a busy week in New Zealand. Retail Sales softened in the fourth quarter, but still posted a respectable gain of 1.2%, which was within expectations. Inflation Expectations, which surveys business managers, dropped to 1.6%, its lowest level since 1994. There wasn’t much relief from the GDT Price Index, which came in at -2.4%, marking a fourth straight decline for the key indicator. Dairy powder prices have fallen 15 percent this year, while the New Zealand dollar has risen about five percent during this time. Weighing in on this topic, New Zealand Prime Minister John Key made a rather bizarre comment, saying he was surprised that the currency hadn’t lost ground in line with falling dairy prices – one can only imagine the market reaction if Angela Merkel or Barack Obama had made similar comments about the euro or US dollar.

Is the Federal Reserve considering negative interest rates? Such a concept bordered the unthinkable just a few months ago, when the US economy was firing on all four cylinders and the Fed raised interest rates for the first time in nine years. Fast forward to Yellen’s appearance before Congress last week, where the Fed chair refused to rule out negative interest rates. The Fed has rejected making such a move in the past, and this is unlikely to change. Still, Negative Interest Rate Policies (NIRP) has become a relevant tool for central banks. The Bank of Japan shocked the markets in January when it adopted negative rates, and the ECB has had this policy in place for some time on deposits, and has hinted that it could adopt this scheme to its benchmark rate, which is currently at 0.05%. Such a scheme is supposed to combat deflation and boost economic growth by pressuring banks to increase lending. In her testimony, Yellen noted that inflation rates in the US have remained very low due to the strong dollar and weak oil prices. Given the current economic situation, many experts expect no more than two rate hikes this year, perhaps in June and December. At the same time, any improvement in key US numbers will heat up speculation about a possible March hike. If the markets smell a March rate hike, we could see the US dollar posts broad gains.

Tuesday (Feb. 16)

• 8:30 US Empire State Manufacturing Index. Estimate -10.5 points. Actual -16.6 points
• 10:00 US NAHB Housing Market Index. Estimate 60 points. Actual 58 points
• 16:00 US TIC Long-Term Purchases
• 19:30 US FOMC Member Eric Rosengren Speaks

Upcoming Key Events

Wednesday (Feb. 17)

• 8:30 US Building Permits. Estimate 1.21M
• 8:30 US PPI. Estimate -0.2%
• 14:00 FOMC Meeting Minutes

*Key releases are highlighted in bold

*All release times are EST

NZD/USD for Tuesday, February 16, 2016

NZD/USD February 16 at 9:40 EST

Open: 0.6648 Low: 0.6574 High: 0.6676 Close: 0.6590

NZD/USD Technical

• NZD/USD lost ground in the Asian session. The pair was flat in the European session but has resumed downward movement in North American trade.
• 0.6605 has switched to a resistance role following losses by NZD/USD. It remains a weak line and could see further action during the North American session.
• 0.6449 is providing support.

Further levels in both directions:

• Below: 0.6449, 0.6344 and 0.6233
• Above: 0.6605, 0.6738, 0.6897 and 0.7011

OANDA’s Open Positions Ratio

The NZD/USD ratio is close to an even split of long and short positions, which is indicative of a lack of trader bias as to what direction the pair will take next.

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.