NZD/USD Fundamental Forecast – September 7, 2016

The NZD/USD gained on weakness in the US dollar to trade at 0.7321 up by 16 points after the RBA held rates and policy. The kiwi may get a further boost from tonight’s GlobalDairyTrade auction, which is expected to show another increase in milk powder prices. Ahead of the auction, traders will be watching for wholesale trade data today for the second quarter and the Reserve Bank of Australia’s review of interest rates, which isn’t expected to result in a change.

Looking beyond the profit-taking we have seen of late, with the TWI at ~78 we see no reason for the 2yr to be this high ahead of what is almost certainly going to be an OCR cut in November yet this is only trading at a ~17bp gap to September, and still above 1.8% in outright term.

Borrowers appear set to see even lower interest rates in the wake of lower than expected inflation. On Monday Statistics New Zealand revealed that the consumer price index (CPI) rose by a less than expected 0.4 per cent in the year to June 30.

With the Reserve Bank forecasting that inflation would be 0.6 per cent, economists now see the central bank as odds-on to cut the official cash rate to 2 per cent on August 11, a new all-time low.

Westpac, which was already forecasting an August cut, said market pricing of financial products suggested there was now an 80 per cent chance that the Reserve Bank would cut the OCR on August 11, up from 70 per cent before the figures were released.

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Upcoming Economic Events that you should be monitoring:

 September 7, 2016

Government Bond Auctions

Date Time Country Auction

Sep 07 10:30 Denmark Holds bond auction

Sep 07 11:03 Sweden Holds bond auction

Sep 07 11:30 Germany Eur 5bn 0% Aug 2026 Bund

Sep 08 11:00 Ireland Holds bond auction

Sep 08 17:20 Italy Announces details of bond auction