NZD/USD Weekly Fundamental Analysis, September 14 – September 18, 2015 Forecast

Weekly Analysis and Recommendations:  The NZD/USD finished higher last week. The tight trading range and the low volume suggest impending volatility. The Federal Open Market Committee interest rate decision on September 17 is likely to be the catalyst behind the volatility. The FOMC announcement is expected to have the largest impact on prices this week. An interest rate hike will likely drive the New Zealand Dollar lower against the U.S. Dollar because it will make the Greenback a more attractive investment. 

There is a high degree of uncertainty going into the Fed’s two-day meeting which begins on September 16. The Fed’s hawkish members may believe the central bank should normalize policy even before long-term inflation reaches its targeted goal of 2%. The dovish Fed members will vote against a rate hike because they believe the global markets are too unstable to handle a rate hike at this time. They cite the weakness in China’s economy, stock market volatility and dovish central banks as three key reasons for refraining from a rate hike at this time. A vote against a rate hike in September will push it later in the year with December the most likely date since the Fed holds a press conference that month. 

Some members of the financial community are opposed to a rate hike. Early last week, World Bank chief economist Kaushik Basu told the Financial Times that the Federal Reserve would spark “panic and turmoil” in emerging markets if it decides to raise interest rates this week. He added that the Fed should hold off on a hike until the global economy is more stable. “I don’t think the Fed lift-off itself is going to create a major crisis but it will cause some immediate turbulence,” he was quoted as saying. 

Christine Lagarde from the International Monetary Fund also cautioned the Fed that it shouldn’t rush its decision to raise interest rates and should move only when it is sure the decision is unlikely to be reversed later. “It (the Fed) should really do it for good, if I may say,” Lagarde said. “In other words, not give it a try and have to come back.” 

Last week, the Reserve Bank of New Zealand cut its benchmark interest rate 25 basis points to 2.75 percent. Most traders believe the central bank will cut again in December. Although the economy is being supported by low interest rates, construction activity and high net immigration, this only generated 2.5% growth. The current growth statement suggests the economy is now softer than it was when the RBNZ last cut on July 23. 

This is a light week for economic reports from New Zealand. On Wednesday, we get to see the latest Current Account figures. The estimate is -1.51 billion, down from 0.66 billion last month. On September 17, quarter to quarter GDP is expected to show an increase of 0.6%. This is up from 0.2%. 

On September 15, investors will get the opportunity to react to the latest U.S. retail sales figures. Core retail sales are expected to post a reading of 0.1%, down from the previous 0.4%. Retail sales are expected to come out at 0.4%, also down from the previous 0.6% reading. The Empire State Manufacturing Index could be the most volatile report this week. It is expected to be up 0.7 versus the previous -14.9. 

Wednesday’s month to month CPI report is expected to show a reading of -0.1%. Year over year Final CPI is expected to be 0.2%. Core CPI should come out at 0.1%, unchanged from the previous month. The Fed will have these figures when it starts its two-day meeting. 

Before the Fed announcement on Thursday, the U.S. will report on building permits, housing starts and the Philly Fed Manufacturing Index. 

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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