New Zealand Dollar to Look Past Retail Sales Data, Trade on Risk Trends

Fundamental Forecast for New Zealand Dollar: Neutral

• NZD/USD Double Top in Place Below 0.74 Figure?
• New Zealand Dollar Sinks as Jobs Report Sours Rate Hike Outlook

The New Zealand Dollar remains closely tied to underlying risk sentiment, with prices showing a formidable near-term correlation to the MSCI World Stock Index on 20-day percent-change studies.The path of least resistance is unclear however after last week’s US employment figures produced mixed results, offering little clarity about investors’ assessment of the health of the world’s largest consumer market and, by extension, the continuity of the global recovery. Indeed, the greenback sold off along with stock markets, with traders seemingly more in tune with the disappointing headline figure’s implications for monetary policy rather than the US currency’s safe-haven profile. Curiously, shares went on to erase most of their initial decline after the Private Payrolls figure printed much closer to expectations than the census-distorted Nonfarm Payrolls outcome, but the greenback remained under pressure and retraced less than half of the initial spike lower.

Looking ahead, a busy week of US economic releases promises to offer more clarity on the trajectory of risky assets. Needless to say, the most important of these will be the Federal Reserve’s interest rate announcement. While markets are unequivocally pricing in no chance of a change in benchmark borrowing costs, traders will doubtless pay close attention to the language of the statement and any clues this offers on where things go from here. On balance, a dovish lean seems likely considering the overwhelming evidence that the US economy will slow in the second half of the year. However, with the States amounting to the last viable engine of global growth, the outcome may prove supportive for the Dollar amid a return to widespread risk aversion. Indeed, Europe has been sidelined as it deals with its hefty debt burden, Japan remains mired in deflation, and China is willfully pulling on the brakes, spooked by fears of asset bubbles and runaway inflation. Alternatively, an extension of Friday’s dynamics may see USD come under renewed selling pressure as withering tightening expectations supersede the US currency’s safety benefits.

June’s Retail Sales figures headline the domestic calendar, with expectations calling for a 0.5 percent increase from the previous month. This puts the annual growth rate at 2.7 percent, the highest in three months. It remains to be seen if this proves supportive however after unemployment unexpectedly soared in the second quarter, an outcome that foreshadows downward pressure on disposable incomes and consumption.