NZD/USD Weekly Fundamental Analysis, August 3 – August 7, 2015 Forecast

Weekly Analysis and Recommendations:

The NZD/USD may have closed higher for the second consecutive week since reaching a near-term low at .6497, but expectations are for prices to fall further before the end of the year. The truth is the New Zealand economy is running on fumes and although there was a slight bounce after the last rate cut, the Reserve Bank may cut rates two more times before the end of the year. 

Like the Canadian Dollar and Euro, the New Zealand Dollar is under pressure due to the interest rate differential and the divergence between the monetary policies of the U.S. Federal Reserve and the Reserve Bank. Simply stated, the Fed is getting ready to raise rates while the Reserve Bank is considering another rate cut. The lure of higher rates will make the U.S. Dollar a more attractive investment and new money will flow into it. 

The main reasons for the weakness in the New Zealand economy are plunging dairy prices, a soft housing market, weak expectations for almost all sectors of the economy except retail, and rising unemployment. Wednesday’s Employment Change and Unemployment Rate reports will tell us a lot about the strength of the economy. The Employment Change report is expected to show a reading of 0.5%, down from the previous reading of 0.7%. The unemployment rate is expected to rise from 5.8% to 5.9%. 

The major report this week will come from the U.S. On Friday, August 7, the Department of Labor will release the latest U.S. Non-Farm Payrolls figures. It is expected to show the economy added 224K new jobs. The Fed will be watching this report closely because it is counting on an improving labor department to support its decision to hike interest rates. A number substantially above 224K will likely mean the Fed will hike rates in September. This would be bearish for the NZD/USD. A number substantially below 224k will likely scrap the idea for a September rate hike and push it into December. It will also trigger a position-squaring rally in the NZD/USD, but gains will be limited. 

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