Direction of NZDUSD determined through offshore factors

11.07 NZST, Wednesday 31 July 2013

Ultimate direction of NZDUSD determined through offshore factors

By Andrew May (Sales Trader, CMC Markets New Zealand)

In a solemn pact of solidarity with its Trans-Tasman counterpart, the New Zealand dollar has tumbled further overnight to open at US 0.7984 following comments by RBA Governor Glenn Stevens. Mr Stevens said yesterday that markets could strongly expect another rate cut to aggressively incite stimulus and to decimate the beleaguered Aussie Dollar further, perhaps by as early as next Tuesday’s meeting.

The Kiwi US cross already found itself unwound 70pts post Monday’s US 0.8098 open as traders unwound risk in the build-up to this week’s huge economic announcements scheduled to begin early tomorrow morning with US GDP and private payrolls.

There is an eeriness of trepidation moving into the later part of this week. Traders will try to second guess the FOMC’s desired effect for the world’s largest economy. After all, the Dow Jones index (the primary gauge) has been heavily supported at 15,500 for the past two weeks. It’s as if the record level of 15,613 breached earlier will continue to remain out of focus until the dust has settled at the end of the week.

No doubt the US FOMC meeting and end of week US payroll data will likely determine market sentiment towards the ‘greenback’ and riskier assets such as the Kiwi dollar. A strong report could see intense demand for the US dollar and a renewed weak risk appetite to resource currencies especially given the expectation of a conducive QE tapering programme sooner rather than later.

Ultimately the market will show greater response to data than comments and we must not forget the inclusion of Thursday’s official July Chinese manufacturing. However the NZDUSD should find a continuation of support at 0.7930-0.7950 with decent resistance approaching the mid-June highs of 0.8130. Should the going get tough under waning risk appeal, the NZD may find itself under pressure testing 0.7780. But don’t expect this fledgling to go down without a fight.

The NZDAUD has enjoyed new found stardom amidst a spiralling Aussie dollar rising to a five year high to open today 0.8810. Expect to see renewed vigour in this cross pair as it will at some stage test AUD 90c by the end of the year, if not earlier.

investors. You should consider whether or not financial products including CFDs are suitable for you. CMC Markets recommends that you should seek independent professional advice and ensure you fully understand the risks involved before trading.

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