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NZD Weighed by Lackluster 1Q GDP Report; Dovish RBNZ on Tap?

NZD Weighed by Lackluster 1Q GDP Report; Dovish RBNZ on Tap?

2017-06-15 15:18:00
David Song, Currency Strategist
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Talking Points:

- Growing Rift at BoE Props Up British Pound; Carney Speech in Focus.

- New Zealand Dollar Weighed by Lackluster GDP Report; Dovish RBNZ on Tap?

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

GBP/USD

1.2767

1.2795

1.2691

16

104

GBP/USD pares the decline following the Federal Open Market Committee (FOMC) meeting as the Bank of England (BoE) votes 5 to 3 to keep the benchmark interest rate at the record-low of 0.25%.

The growing dissent within the Monetary Policy Committee (MPC) may continue to limit the downside risk for the British Pound as Michael Saunders and Ian McCafferty now push for a rate-hike, but the rift may fail to boost interest-rate expectations as Kristen Forbes departs from the BoE at the end of the month. With that said, market participants may pay increased attention to fresh remarks from Governor Mark Carney as the central bank head is scheduled to speak at the Mansion House Banks and Merchants dinner, and the British Pound remains at risk of giving back the relief rally from earlier this year as the majority of the BoE remains in no rush to normalize monetary policy.

GBP/USD Daily

GBP/USD Daily Chart

Chart - Created Using Trading View

  • Lack of momentum to break/close below the Fibonacci overlap around 1.2630 (38.2% expansion) to 1.2680 (50% retracement) may generate range-bound conditions for GBP/USD as the former-resistance zone offers support; first topside hurdle comes in around 1.2860 (61.8% retracement), which sits just above the 50-Day SMA (1.2826), followed by 1.2950 (23.6% expansion).
  • However, the broader outlook for GBP/USD is no longer constructive as the pair fails to preserve the upward trend from March, with the Relative Strength Index (RSI) highlighting a similar dynamic; may see the pound-dollar exchange rate continue to give back the relief rally from earlier this year as the momentum indicator starts to carve a bearish formation, with a move below the 100-Day SMA (1.2624) & 200-Day SMA (1.2574) opening up the next downside region of interest around 1.2460 (61.8% expansion) to 1.2490 (38.2% retracement).

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Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

NZD/USD

0.7197

0.7271

0.7186

64

85

NZD/USD struggles to hold its ground as New Zealand’s 1Q Gross Domestic Product (GDP) report showed the economy growing at the slowest pace since 2015, and NZD/USD may continue to track lower ahead of the Reserve Bank of New Zealand (RBNZ) interest rate decision on June 22 as the central bank appears to be on course to preserve the record-low cash rate throughout 2017.

The RBNZ is likely to reiterate ‘monetary policy will remain accommodative for a considerable period’ amid the ongoing slack in the real economy, and Governor Graeme Wheeler may continue to tame interest-rate expectations ahead of his departure in September as ‘the growth outlook remains positive, supported by on-going accommodative monetary policy.’ In turn, a slew of dovish rhetoric from the RBNZ may undermine the near-term recovery in NZD/USD amid the deviating paths for policy.

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using Trading View

  • The near-term correction in NZD/USD appears to be coming to an end as the pair fails to test the key resistance zone around 0.7330 (38.2% retracement) to 0.7350 (23.6% expansion), and the kiwi-dollar exchange rate stands at risk of giving back the rebound from the May-low (0.6818) as it trades back within the downward trending channel carried over from 2016.
  • The Relative Strength Index (RSI) points to a similar theme as it pulls back from overbought territory, and the momentum indicator may flash a bearish signal should the oscillator threaten the bullish formations carried over from earlier this year.
  • First downside region of interest comes in around 0.7160 (61.8% retracement) followed by the 0.7100 (38.2% expansion) handle, which largely lines up with the 200-Day SMA (0.7101).

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IG Sentiment
  • Retail trader data shows 46.4% of traders are net-long GBP/USD with the ratio of traders short to long at 1.16 to 1. The number of traders net-long is 10.0% lower than yesterday and 5.7% higher from last week, while the number of traders net-short is 9.6% lower than yesterday and 7.7% lower from last week.
  • Retail trader data shows 22.1% of traders are net-long NZD/USD with the ratio of traders short to long at 3.53 to 1. In fact, traders have remained net-short since May 24 when NZD/USD traded near 0.69967; price has moved 3.0% higher since then. The number of traders net-long is 13.2% lower than yesterday and 37.1% lower from last week, while the number of traders net-short is 0.4% lower than yesterday and 27.0% higher from last week.

For More Information on Retail Sentiment, Check Out the New Gauge Developed by DailyFX Based on Trader Positioning

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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