NZD/USD Weekly Fundamental Analysis, August 31– September 4, 2015 Forecast

Weekly Analysis and Recommendations:

The NZD/USD closed lower last week in a volatile trade. The market sold off sharply early in the week after China’s stock market collapsed in reaction to a weak manufacturing activity report from the week before. 

The Forex pair stabilized after the People’s Bank of China cut its one-year lending rate and lowered its reserve requirement. In addition to these moves, it also injected a large sum of Yuan into the financial system. By the end of the week, the Kiwi had recovered almost all of its loss amid fading fears about China and a strong recovery by global equity markets. 

Gains may have also been limited by the release of stronger-than-expected U.S. economic data. Last week, investors were surprised by the rebound in durable goods and the jump in GDP. Both point towards an improving economy, putting the possibility of a Fed rate hike in September back on the table. However, the chances of this taking place still remain low at about 24%.

 The odds of a rate hike are low because the recent volatility may have given the Fed an excuse to wait until later in the year to raise rates for the first time since 2006. On paper, this should help underpin the New Zealand Dollar, but its economy has problems of its own, which is leading some investors to believe the Reserve Bank of New Zealand may have to cut interest rates at least once before the end of the year. 

This week’s reports from New Zealand will be sparse so traders are likely to focus on developments in China, commodity prices and market sentiment. 

Tuesday’s report on Chinese manufacturing PMI is likely to exert the most influence. The official manufacturing PMI report is expected to show a reading of 49.8. This would come in below 50.0, which would indicate a contraction. The Caixin Final Manufacturing PMI report is expected to show a reading of 47.2. Missing to the downside could trigger another sharp break in the stock market while fueling increased volatility in the New Zealand Dollar as traders will likely repeat the “risk-off” scenario from last week. 

On Friday, the focus will be on the U.S. Non-Farm Payrolls report which is expected to show the economy added 220K new jobs. No one expects this report to convince the Fed to raise rates in September, however, it doesn’t mean the report cannot induce a volatile reaction. 

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: 

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