NZD/USD Fundamental Analysis – week of July 25, 2016 -Forecast

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Updated: Jul 23, 2016, 06:43 UTC

The NZD/USD will open the new week at 0.6999 seeing a steady decline this week as the RBNZ and Governor Wheeler stepped in early to warn on housing and to

NZD/USD Fundamental Analysis – week of July 25, 2016 -Forecast

The NZD/USD will open the new week at 0.6999 seeing a steady decline this week as the RBNZ and Governor Wheeler stepped in early to warn on housing and to discuss the economic outlook. The pair is down 1.58% for the week after trading above its average range while the US dollar continued to rally.

The Federal Open Market Committee meeting will conclude and the Federal Reserve (Fed) will most likely leave the fed funds rate unchanged at 0.25 – 0.50%. However, the following statement will be important as US data have been positive in the previous weeks and therefore a slightly upbeat or hawkish statement is expected from the Fed.

In a kind of half-time comment – midway between official interest rate announcements – the Reserve Bank yesterday spoke of a fragile world economy, a too-high New Zealand dollar, and short term inflation prospects that are way too low. It signaled it would lower interest rates.

Several economists including ASB’s Kim Mundy said they hoped this would bring down the value of the New Zealand dollar to put exporters in a better position. It might not, however, help home buyers too much.

“The announcement is likely to see the RBNZ cutting interest rates in August and we might see more interest rate cuts in the future,” Ms Mundy said.

The comments would bring down a New Zealand dollar that the Reserve Bank said was 6 percent higher than it thought it would be, and that would help exporters, she said. It would also help deal with short term inflation, which Westpac economist said was not too high – at 0.4 percent annually.

“With inflation running at such low levels, the RBNZ is going to face a tough time,” he said.

“As a result it is likely they are going to cut again in August and there is a risk that the OCR may need to go lower further out.”

Earlier this week, official data showed consumer prices rising 0.4 percent in the three months to June, with the annual rate at the same level. Inflation has been outside the RBNZ’s 1-3 percent band for nearly two years.

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Major Economic Events for the week:

Date	Currency	Name	Volatility	Previous	Consensus
7/27/2016	AUD	Consumer Price Index (YoY)	3	1.3	1.1
7/27/2016	USD	Durable Goods Orders	3	-2.2	-1.1
7/27/2016	USD	Fed’s Monetary Policy Statement	3
7/27/2016	USD	Fed Interest Rate Decision	3	0.5
7/28/2016	JPY	BoJ Press Conference	3
7/29/2016	JPY	BoJ Interest Rate Decision	3	-0.1	-0.2
7/29/2016	JPY	BoJ Monetary Policy Statement	3
7/29/2016	EUR	Gross Domestic Product (YoY)	3	1.7	1.6
7/29/2016	EUR	Gross Domestic Product (QoQ)	3	0.6	0.3
7/29/2016	EUR	Consumer Price Index (YoY)	3	0.1
7/29/2016	EUR	Consumer Price Index – Core	3	0.9