NZD/USD – NZ Dollar Slide Continues as Dairy Auction, Jobless Rate Disappoint

NZD/USD has posted losses on Wednesday, continuing the downward trend which marked the Tuesday session. The pair is trading slightly below the 0.69 line in the European session. In New Zealand, the Dairy Price Auction posted a drop of 1.4%. Employment Change gained 1.2%, beating expectations. However, the unemployment rate rose to 5.7%, above the estimate. The US will release two key indicators – ADP Nonfarm Employment Change and the ISM Non-Manufacturing PMI.

The New Zealand dollar continues to lose ground and has fallen 150 points since Monday. The currency responded negatively to a weak GDT Price Index and mixed employment numbers. GDT Price Index declined 1.4%, compared to a gain of 3.8% in the previous reading. Employment numbers were a mix. Employment Change posted a gain of 1.2% in the first quarter, beating the forecast of 0.6%. At the same time, the unemployment rate jumped to 5.7% in March, up from 5.3% a month earlier. The estimate stood at 5.5%.

The New Zealand central bank (RBNZ) remained on the sidelines last week and held the benchmark interest rate at 2.25%. This followed a surprise rate cut in March, when the RBNZ lowered rates from 2.50% to 2.25%. Some analysts had expected another cut in the April decision, and the New Zealand dollar jumped 160 points following the April rate announcement. Following the announcement, RBNZ Governor Graeme Wheeler stated that the central bank was considering further easing in order to bring inflation up to the RBNZ’s inflation target of 1-3 percent. CPI in the first quarter improved to 0.2%, but this is well short of the central bank’s inflation target. Wheeler also noted that the New Zealand dollar is stronger than the RBNZ would like, as the higher kiwi has weakened the critical export sector. Although a June cut is a strong possibility, lower rates could increase housing demand and overheating the housing market.

The market will be treated to key US employment numbers, starting with the release of ADP Nonfarm Payrolls on Wednesday. This will be followed by Unemployment Claims and the all-important Nonfarm Payrolls later in the week. The employment picture has been a bright spot in the US economy, as unemployment remains at very low levels and Nonfarm Payrolls have been above the 200-thousand threshold. Despite the robust labor market, however, consumer confidence and spending has not kept pace. Last week, UoM Consumer Sentiment dipped to 89.0 points short of the estimate of 90.3 points. This also marked the fourth straight drop for the key indicator. Consumer spending is a key engine of economic activity, and softer numbers in the first quarter were an important reason that US GDP weakened in the first quarter, with a lukewarm reading of 0.5%.

NZD/USD Fundamentals

Tuesday (May 3)

• 9:59 New Zealand GDT Price Index. Actual -1.4%
• 18:45 New Zealand Employment Change. Estimate 0.6%. Actual 1.2%
• 18:45 New Zealand Unemployment Rate. Estimate 5.5%. Actual 5.7%
• 18:45 New Zealand Labor Cost Index. Estimate 0.3%. Actual 0.4%
• 21:00 New Zealand ANZ Commodity Prices. Actual -0.8%

Wednesday (May 4)

• 8:15 US ADP Nonfarm Employment Change. Estimate 205K
• 8:30 US Preliminary Nonfarm Productivity. Estimate -1.3%
• 8:30 US Preliminary Unit Labor Costs. Estimate 2.9%
• 8:30 US Trade Balance. Estimate -45.6B
• 9:45 US Final Services. Estimate 52.1
• 10:00 US ISM Non-Manufacturing PMI. Estimate 54.9
• 10:00 US Factory Orders. Estimate 0.7%
• 10:30 US Crude Oil Inventories. Estimate 0.6M

Upcoming Key Events

Thursday (May 5)

• 8:30 US Unemployment Claims. Estimate 261K

*Key releases are highlighted in bold

*All release times are EDT

NZD/USD for Wednesday, May 4, 2016

NZD/USD May 4 at 6:35 EDT

Open: 0.6927 Low: 0.6875 High: 0.6941 Close: 0.6887

NZD/USD Technical

• NZD/USD posted losses in the Asian session. The pair has shown limited movement in European trade
• 0.6897 remains fluid and has switched to a resistance line. It could see further action during the day
• 0.6748 is providing strong resistance

Further levels in both directions:

• Below: 0.6738, 0.6621 and 0.6542
• Above: 0.6897, 0.7011, 0.7100 and 0.7231
• Current Range: 0.6738 to 0.6897

OANDA’s Open Positions Ratio

The NZD/USD ratio has shown slight movement towards short positions on Wednesday. Long and short positions are close to an even split. This is indicative of a lack of trader bias as to what direction NZD/USD 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.