NZD/USD – Kiwi Unchanged, RBNZ Cites Risks to Economy

NZD/USD is almost unchanged on Wednesday, as the pair trades at the 0.68 line in the North American session. It’s a quiet day on the release front. In the US, today’s highlight is Crude Oil Inventories. The markets are expecting a small surplus of 0.7M. Later in the day, New Zealand will release the Business NZ Manufacturing Index and the Food Price Index. On Thursday, we’ll get a look at two key indicators – US Unemployment Claims and New Zealand Retail Sales. Unemployment Claims are expected to edge up to 277 thousand, while New Zealand Retail Sales is anticipated to dip to 1.0%.

The RBNZ released its Financial Stability Report on Tuesday, and the RBNZ noted its concerns, saying that weak global growth, low dairy prices and high house prices posed risks to the New Zealand economy. The soft global economy continues to take a toll on the New Zealand export sector, and RBNZ Governor Graeme Wheeler did not mince words, saying that the outlook for the global economy has “deteriorated” in the past few months. Inflation is currently at 0.4%, well short of the Bank’s target of 2.0%. The RBNZ has been reluctant to respond to low inflation with a rate cut, due to concerns about the housing market. Housing prices continue to rise in Auckland, home to one-third of the country’s population, and lower rates could overheat the housing market and have negative repercussions on the economy.  The RBNZ surprised the markets with a quarter-point cut in March, lowering rates from 2.50% to 2.25%. The Bank stayed pat in April, and will have a tough decision to make when it sets the Official Cash Rate on June 8.

It’s been one step backward, one forward for US employment indicators. JOLT Job Openings looked sharp in April, jumping to 5.76 million. This figure was much stronger than the estimate of 5.56 million. However, last week’s host of employment numbers were a mix, which predictably has raised concerns about the strength of the US labor market. Last week, Nonfarm Payrolls looked awful, as the key indicator slid to just 160 thousand, well short of the forecast of 203 thousand. This marked the lowest reading in seven months. Other employment indicators disappointed, as ADP Nonfarm Payrolls and Unemployment Claims both missed their estimates. In other releases on Friday, wage levels showed no change, as Average Hourly Earnings posted a weak gain of 0.3%. The unemployment rate remained steady at 5.0%.

The Federal Reserve hasn’t made a move since December’s historic rate hike, leaving the markets looking for hints as to when the Fed might make a move. In its April policy statement, the Fed didn’t raise rates, but the message to the markets with regard to the US economy was one of cautious optimism. The statement noted continuing improvement in the labor market but added that it was keeping a watchful eye on low inflation levels. The Fed statement appeared to leave the open to a June hike, but last week’s soft payrolls report has greatly reduced the likelihood of a June move. On Friday, New York Fed president William Dudley said he remains confident that the Fed could raise rates as much as twice this year, but many analysts are skeptical if the Fed will raise rates before 2017. Economic releases, especially employment and inflation indicators, will be major factors as the Fed must decide whether to press the rate trigger in June.

NZD/USD Fundamentals

Wednesday (May 11)

• 10:30 US Crude Oil Inventories. Estimate 0.7M
• 13:01 US 10-year Bond Auction
• 14:00 US Federal Budget Balance. Estimate 116.2B
• 18:30 Business NZ Manufacturing Index
• 18:45 New Zealand Food Price Index

Upcoming Key Events

Thursday (May 12)

• 8:30 US Unemployment Claims. Estimate 277K
• 18:45 New Zealand Retail Sales. Estimate 1.0%

*Key releases are highlighted in bold

*All release times are EDT

NZD/USD for Wednesday, May 11, 2016

NZD/USD May 11 at 10:10 EDT

Open: 0.6798 Low: 0.6825 High: 0.6780 Close: 0.6807

NZD/USD Technical

• NZD/USD has shown limited movement in the Wednesday session
• 0.6897 is a strong resistance line
• 0.6738 is providing support

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 is almost unchanged on Wednesday, consistent with the lack of movement from NZD/USD. Long positions have a slight majority (53%), indicative of slight trader bias towards NZD/USD breaking out and moving to higher levels.

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.