NZD/USD Fundamental Analysis – July 4-8, 2016 – Forecast

The NZD/USD ended the week on a high note at 0.7168 seeing a weekly gain of 0.48% as commodity currencies increased on hopes of Chinese stimulus. In China, the manufacturing sector stalled in June, with the official Purchasing Managers’ Index (PMI) easing to 50.0, compared with 50.1 in May, in line with expectations from a Reuters poll. The services sector expanded at a quicker pace, with the official PMI reading at 53.7 in June, from 53.1 in May. A reading above 50 indicates an expansion.

“Today’s data suggest that China is unlikely to achieve a GDP growth of 6.7 percent in the second quarter,” said ANZ’s Raymond Yeung and David Qu, adding economic indicators such as fixed asset investment and retail sales declined previously and Friday’s PMI data suggests China’s industrial production growth is unlikely to stay at 6 percent on-year in June.

While Asian currencies took on a more positive tone, others in the emerging-markets world headed lower.

New Zealand wool prices fell at yesterday’s South Island auction, hurt by a stronger local currency and mixed fiber quality.

The 35-micron strong wool price slid to $5.55 per kilogram, down 30 cents/kg from the previous two weekly auctions and 9 cents/kg below the five-year average, AgriHQ said. The price for 39-micron wool increased 5 cents/kg to $5.55/kg from last week’s North Island auction but was down 25 cents/kg from the comparable South Island auction the previous week. The price of 30-micron lamb wool fell 50 cents/kg to $4.95/kg compared with last week and was 11 percent below its five-year average, AgriHQ said.

The New Zealand dollar has strengthened amid global market volatility following the UK’s vote to leave the European Union late last week, and the higher local currency makes New Zealand exports less attractive for buyers. Some 62 percent of the 10,874 bales on offer at this week’s auction were sold, with most of the passed-in lines containing higher degrees of vegetable matter.

“The strong New Zealand dollar and mixed wool quality generally dampened the prices at this week’s South Island auction,” said AgriHQ analyst Shaye Lee. “Returns on strong crossbreds were a mixed bag, with bales with more contaminants reportedly being discounted the most.”

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