NZD/USD Weekly Fundamental Analysis, August 17 – August 21, 2015 Forecast

Weekly Analysis and Recommendations:

Volatility was the theme in the NZD/USD market last week. Early in the week, the Forex pair was slammed into a new low for the year after the People’s Bank of China devalued its currency for a third time on August 12. After conditions stabilized, the market snapped back to its highest level since July 31. The event produced a range of .0182. Despite the wicked price action, the New Zealand Dollar has remained relatively stable for four weeks. 

On July 16, the NZD/USD spiked down to .6497. This led to a rally to .6738. Last week’s low at .6467 was only .0030 below the July low despite talk of Fed rate hike, a plunge in dairy prices and China’s devaluation. This price action suggests consolidation. The low in July corresponded with the second quarter CPI report. This report showed that prices increased by 0.4% over the quarter, leaving the annual rate at 0.3%. Although investors were expecting a quarterly reading of 0.6% and an annual rate of 0.4%, the numbers appeared to be good enough to put in a short-term bottom. 

Before getting too excited about the short-term bottoming action, the consolidation is likely related to oversold technical conditions and position-paring as traders decreased bets for a September rate hike by the Fed. The fundamentals remain weak so the decision for traders this week and over the near-term will be to short at current levels and ride out any retracements, or wait for a retracement into a value zone before refreshing short positions. 

Despite another delay in the Fed rate hike and stable price action, nothing has changed from an economic standpoint that would suggest the start of a prolonged rally. Staying in tune with the Reserve Bank of New Zealand’s July statement, investors should expect weaker prices into the end of the year. New Zealand’s economy may be growing at an annual rate of around 2.5 percent, however, the growth outlook is still soft. In addition, headline inflation is currently below the Bank’s 1 to 3 percent target range. 

While the currency may have moved sideways to higher over the past month, further depreciation is likely, given the weakness in commodity prices. In the eyes of the RBNZ, the currency is still overvalued and given the circumstances, traders should expect further cuts by the central bank. Its next meeting is September 10. 

Last week’s developments out of China should also be a red flag for Kiwi investors. This should lead to heightened uncertainty and increased volatility. 

Don’t be surprised if the NZD/USD appreciates over the short-run because there may be more position-squaring this week following the U.S. consumer inflation number and the Fed minutes on Wednesday. These two events may confirm that a September rate hike has been taken off the table. However, the long-term fundamentals are still bearish. 

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.

 Major Economic Events for the Week: 

           Date                         Time              Curr                                   Event                                                      Forecast   Previous