NZD/USD Fundamental Forecast – May 19, 2016

The NZD/USD closed at .6765, down 0.0045 or -0.66%. There were no events scheduled out of New Zealand today so traders sold the Kiwi in sympathy with the Australian Dollar. Also pressuring the Kiwi was a drop in demand for risky assets.

The New Zealand Dollar weakened after the Australian Dollar saw fresh declines as new data concerning wage growth came in softer than expected. Wages rose just 0.4% q/q and 2.1% y/y – on both measures growth is the slowest on record. The weak wage growth figure is further confirmation of low inflation which is likely to revive talk of an RBA rate cut. Although a June rate cut may be off the table based on trader reaction to the RBA minutes, traders seem to be pricing in a rate cut for August. It will likely be triggered by the second quarter CPI report, due in late July.

The Kiwi was also buffeted by conflicting forces, with a jump in U.S. consumer prices adding to the case for a Federal Reserve rate hike, while the price of dairy products in the GlobalDairy Trade auction was positive for the currency. Fonterra Cooperative Group is expected to give its first milk payout forecast for the 2016/17 season after its board meeting next week, with some increase seen from this season’s weak payout, while the Reserve Bank is expected to cut the official cash rate in August, if not at its June meeting.

The current downside momentum suggests there is real selling behind today’s weakness. The combination of a sooner-than-expected Fed rate hike and a possible RBNZ rate cut in June are two reasons to play the short side over the near-term.

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, May 19, 2016

Government Bond Auctions

Date Time       Country           Auction

May 18 11:30 Germany Eur 4bn Feb 2026 Bund

May 18 17:20 Sweden Announces details of bond auction on May 25

May 19 10:30 Spain Holds bond auction

May 19 11:03 Sweden Hold bond auction

May 19 11:50 France Holds bond auction

May 20 11:03 Sweden Sek 1.992bn 0.5% Jun 2017 I/L bond