NZD/USD Weekly Fundamental Analysis, April 25 – April 29, 2016 –Forecast

The NZD/USD drove to a 10-month high to .7054 early last week, but buyers couldn’t sustain the move amid selling pressure caused by traders pricing in the chance that the Reserve Bank may cut interest rates at its meeting this week in an attempt to bolster lackluster inflation and weaken the currency.

Traders are pricing in a 46 percent chance that the Reserve Bank Governor Graeme Wheeler will cut the official cash rate to 2 percent at the April 28 review while the odds of the OCR being unchanged are 54 percent, based on the overnight interest swap curve.

Further cuts are also being priced in for this year with expectations the RBNZ may lower rates as low as 1.75 percent. If the central bank passes on a rate cut at this time, the odds of a June rate hike are expected to rise substantially.

Sellers also hit the Kiwi on Friday after a report said the Bank of Japan is considering expanding its negative rate policy to bank loans and could cut rates further.

This Tuesday, traders may react to the release of Australian first-quarter CPI figures. A firm print may weigh against RBA rate hike speculation and boost the currency, however, there is still the possibility of a downside surprise. Stimulus expansion in the form of a rate cut is still a possibility.

Other outside influences this week should come from the U.S. Federal Reserve on Wednesday and the Bank of Japan on Friday. Both are expected to issue key interest rate and monetary policy decisions.

The Fed is widely expected to leave interest rates unchanged with only 2.3 percent of traders looking for a rate hike. However, its monetary policy statement may contain language that boosts the possibility of a rate hike in June.

In its last statement, the central bank reduced the number of potential rate hikes from four to two, citing threats from global headwinds. Since these have failed to materialize, the Fed may hint at resuming its tightening cycle in June.

Any talk of rate hikes by the Fed is likely to drive risk aversion that should pressure the NZD/USD and global equity markets.

We could see a volatile two-sided trade this week. If the RBNZ passes on a rate cut then we could see a short-covering relief rally. However, hawkish language from the Fed could drive the Forex pair back down.

FxEmpire provides in-depth analysis for each currency and commodity 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 recent analysis and information in our weekly reports and we provide daily updates and outlooks. 

Major Economic Events for the week:

Monday, April 25, 2016

AUD        ANZAC Day Holiday

NZD        ANZAC Day Holiday

Tuesday, April 26, 2016

Wednesday, April 27, 2016

Thursday, April 28, 2016

Friday, April 29, 2016

  JPY        Showa Day Holiday

Government Bond Auctions

Date Time       Country           Auction

Apr 25 N/A UK 2.5% July 2065 Gilt (Syndicated tap)

Apr 25 11:35 Germany Eur 1.5bn Apr 2017 Bubill

Apr 26 11:10 Italy Holds BTPei auction

Apr 26 19:00 US Holds 2-year note auction

Apr 27 11:03 Sweden Holds bond auction

Apr 27 11:10 Italy Holds CTZ auction

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

Apr 27 19:00 US 2-year FRN, 5-year note auctions

Apr 28 11:10 Italy Holds 5yr/10yr bond auctions

Apr 28 19:00 US Holds 7-year note auction