Kiwi Collapses
As we round out another week, we’re coming dangerously close to the end of the summer here in London. However, as the weather starts to cool down, action in the markets is certainly showing no signs of lowering the temperature. It’s been another interesting week across the board, with several key moves to note. However, chatting with traders ahead of the weekend, it seems the main move that is capturing attention is the rally in the US Dollar. In terms of specific pairs, in the G10 space it has been the almost 4% drop in NZD which has been the main attraction. So, let’s take a look at what caused the move and, as ever, if you caught it? Well done! If you missed it? There’s always next week.
What Caused the Move?
NZ Growth Concerns
The week commenced with a .5% rate hike from the RBNZ, along with clear signals that the bank intends to tighten further in the coming months. With inflation still at elevated levels, both domestically and globally, the RBNZ cited the need to press ahead with aggressive tightening action in a bid to bring consumer prices back down to its 2%-3% target band. Despite the hawkishness on rates, the move saw NZD trading lower over the week as traders focused on diminished growth prospects as a result of the tightening. Additionally, the RBNZ’s warning over house prices was also received dimly by investors as governor Orr cautioned that the market was likely to undergo a further decline near term.
Hawkish Fed View
The drop in NZD this week was exacerbated by the fresh strength we’ve seen in USD. Despite a weaker inflation reading for July last week, traders this week have once again been mulling the prospect of a larger .75% hike in September. The July FOMC minutes saw the Fed acknowledging the downside risks to the economy while reaffirming its commitment to hiking rates with a view to taming excessive inflation.
Following on from the minutes, a raft of commentary from key Fed members later in the week reinforced the view that the Fed is likely to push ahead with a larger .75% hike in September. With the current USD rally putting further pressure on commodity prices, NZDUSD looks likely to remain pressured near term.
Technical Views
NZDUSD
The reversal lower in NZDUSD this week has seen the market breaking back below the .6385 level as well as the rising trend line from YTD lows. With both MACD and RSI turning lower here, the focus now is on .6210 support. If this level gives way we can expect a continuation back towards the yearly lows at .6064. To the topside, .6385 is the key resistance to note.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.