NZD/USD Fundamental Forecast – July 28, 2016

The New Zealand Dollar dipped on Wednesday after being dragged down by a weak Australian inflation report and a sell-off by the Australian Dollar. The NZD/USD finished at .7036, down 0.0017 or -0.24%.

The NZD/USD has struggled in July, losing as much as 1.7 percent after the Reserve Bank of New Zealand flagged more rate cuts ahead, saying the currency had to go lower to generate a much-needed rise in inflation. Today’s Australian inflation report didn’t help matters much with the data showing consumer prices rose at the slowest annual pace since 1999 last quarter while core inflation remained at a record low of 1.5 percent, well under the Reserve Bank of Australia’s (RBA) target band of 2 to 3 percent, and setting up the central bank for a rate cut in early August to a record low of 1.5 percent.

Although the Kiwi didn’t fall as much as the Aussie, it still remains under a lot of bearish pressure. This week’s U.S. Federal Reserve monetary policy statement on Wednesday and the Bank of Japan’s monetary policy statement and outlook report on Friday could create volatile trading conditions.

The divergence in policies between the Fed and the RBNZ could pressure the NZD/USD if the Fed statement is hawkish. Although the central bank is widely expected to leave interest rates unchanged at this meeting, it could offer hints as to the timing of the next interest rate hike. Traders are hoping the Fed will help end the debate as to if rates will rise in September or December. A significant jump in rate hike expectations should drive the U.S. Dollar higher while decreasing demand for the New Zealand Dollar.

The BoJ is expected to announce a new stimulus package that is expected to include the further lowering of interest rates into negative territory and a boost in the amount of quantitative easing. Investors are concerned the central bank will fall short of expectations which could pressure the New Zealand Dollar because this will likely mean the Japanese economy will continue to remain weak which could have an impact on New Zealand exports to the country.

Look for a sideways trade on Wednesday until the Fed releases its statement at 1800 GMT. A hawkish Fed will pressure the NZD/USD. A dovish Fed is likely to trigger a short-covering rally by the currency pair.

FxEmpire provides in-depth analysis for each asset we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more up to the data analysis and information in our weekly reports, which covers the current week and are published by Sunday before the new week begins. Daily we share any new events, forecasts or analysis that affect the current day. To achieve a full accurate understanding it is important that you study all of our data and analysis as a whole.

 

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Thursday, July 28, 2016

Government Bond Auctions

Date/Time Country Type

Jul 27 11:30 Germany Eur 1bn 2.5% Aug 2046 Bund

Jul 28 11:10 Italy Holds bond auction