Key Points:
- Highly likely that we see a cut to OCR in the coming week.
- Technical bias could limit downside to some extent.
- US Election likely to impact the pair heavily as well.
The kiwi dollar had a sharp surge in buying pressure last week which was generated by some unexpectedly strong fundamentals. Namely, the GDT Price Index and NZ Unemployment Rate figure came in significantly better than expected whilst the US Employment data proved to be widely disappointing. As for the coming week, focus will now shift to the RBNZ’s OCR decision which is expected to result in a cut of around 25bps.
Last week was relatively news rich for the kiwi dollar but two key fundamental results towered above all others in terms of impact on the pair’s performance. Specifically, the 11.4% uptick in the GDT Price Index and a drop in the NZ Unemployment Rate to 4.9% sparked one of the biggest three day rallies we have seen for the pair in some time. Additionally, the rather disappointing US ADP and Official Non-Farm Employment Change figures saw buying pressure remain relatively high as the week came to an end.
As we move forward, much of the market’s focus will, of course, be centred on the approaching US Presidential Election. However, on the New Zealand front, there are some key economic news items worth keeping an eye on. Notably, the RBNZ will be announcing its OCR decision and the central bank is presently expected to cut rates by around 25bps. As Wheeler has previously indicated his concerns that the NZD is too high, last week’s rally will likely be cementing his intimations that we are going to see a cut to interest rates this week.
Looking at the technical data now, the kiwi dollar’s current bias suggests that it is likely to erode some of its recent gains. This is largely the result of the overbought stochastics readings and the presence of a long-term zone of resistance around the 0.7341 mark. However, due to the RSI oscillator’s reluctance to move into overbought territory and the long-term Elliot wave pattern, downside risks should be relatively limited.
Ultimately, a near term slip to the downside is looking all but assured for the kiwi dollar moving into this week. However, any bearishness that is on the horizon should be taken with a pinch of salt, especially if the RBNZ fails to follow through with its threats of a rate cut. Additionally, an unexpected Trump victory could see the USD falter which could largely offset any tumbles generated by cut to NZ interest rates.