Talking Points:

- NZD/USD Fails to Test 2017-High, Retail Shorts Tumble 26% Ahead of 2Q CPI.

- USD/CAD Post-BoC Decline Stalls, Bearish Behavior to Persist Amid Shift in Policy Outlook.

- NZD/USD Sentiment Remains Near Extremes with 15.2% of Retail Traders Net-Long; Ratio of Traders Short to Long at5.56 to 1.

DailyFX Table

Ticker

Last

High

Low

Daily Change (pip)

Daily Range (pip)

NZD/USD

0.7319

0.7369

0.7247

55

122

NZD/USD breaks the monthly opening range following the semi-annual Humphrey-Hawkins testimony, but the near-term outlook remains riddled with mixed signs as the pair fails to test the 2017-high (0.7376).

The price action from February may serve as a blueprint as the rebound from the May-low (0.6818) appears to be exhausted, and the resilience in the kiwi-dollar exchange rate may largely unravel over the coming days as New Zealand’s Consumer Price Index (CPI) is expected to slow to an annualized 1.9% from 2.2% in the first-quarter of 2017. Signs of subdued inflation may spark a bearish reaction in NZD/USD as it encourages the Reserve Bank of New Zealand (RBNZ) to keep the official cash rate at the record-low, and Governor Graeme Wheeler may endorse a wait-and-see approach until he departs from the central bank in September as ‘numerous uncertainties remain and policy may need to adjust accordingly.

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using Trading View

  • Lack of momentum to test the February-high (0.7376) may contain the resilience in NZD/USD; another failed attempt to close above the key resistance-zone around 0.7330 (38.2% retracement) to 0.7350 (23.6% expansion) may undermine the near-term rebound in NZD/USD especially as the Relative Strength Index (RSI) deviates with price and carves a bearish formation.
  • In turn, NZD/USD may consolidate going into the week ahead, with the first downside hurdle coming in around the 0.7200 (38.2% retracement) handle followed by 0.7160 (61.8% retracement).

Ticker

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/CAD

1.2745

1.2771

1.2721

6

50

USD/CAD pares the decline following the Bank of Canada’s (BoC) first rate-hike since 2010, but the broader outlook remains tilted to the downside as Governor Stephen Poloz and Co. appear to be on course to implement higher borrowing-costs over the coming months.

The shift in central bank rhetoric may keep USD/CAD under pressure as the BoC adopts an improved outlook for the Canadian economy, and the and the dollar-loonie exchange rate may continue to exhibit a bearish behavior over the remainder of the year as the ‘output gap is now projected to close around the end of 2017, earlier than the Bank anticipated in its April Monetary Policy Report (MPR).’ The fresh comments suggests the BoC will continue to raise the benchmark interest rate over the coming months as officials argue ‘the factors behind soft inflation appear to be mostly temporary,’ and the central bank may adopt a more hawkish tone at the next meeting on September 6 as ‘the adjustment to lower oil prices is largely complete.’

In turn, USD/CAD remains at risk of giving back the rebound from the 2016-low (1.2461) especially as market participants appear to be scaling back bets for a December Fed rate-hike.

USD/CAD Daily

USD/CAD Daily Chart

Chart - Created Using Trading View

  • The recent selloff in USD/CAD appears to be stalling ahead of the June 2016-low (1.2654), but the pair stands at risk for a further decline as long as both price and the Relative Strength Index (RSI) preserve the bearish formations carried over from the previous month; will keep a close eye on the momentum indicator as it holds below 30 and sits in oversold territory.
  • Another close below the 1.2750 (78.6% retracement) hurdle may spur a more meaningful run at 1.2620 (50% retracement), with the next downside region of interest coming in around 1.2510 (78.6% retracement) followed by 1.2440 (23.6% expansion).
IG Sentiment

Track Retail Sentiment with the New Gauge Developed by DailyFX Based on Trader Positioning

  • Retail trader data shows 15.2% of traders are net-long NZD/USD with the ratio of traders short to long at 5.56 to 1. In fact, traders have remained net-short since May 24 when NZD/USD traded near 0.69415; price has moved 5.4% higher since then. The number of traders net-long is 18.6% lower than yesterday and 11.9% lower from last week, while the number of traders net-short is 25.7% lower than yesterday and 31.8% lower from last week.
  • Retail trader data shows 70.9% of traders are net-long USD/CAD with the ratio of traders long to short at 2.44 to 1. In fact, traders have remained net-long since June 07 when USD/CAD traded near 1.3481; price has moved 5.4% lower since then. The number of traders net-long is 0.2% lower than yesterday and 6.7% lower from last week, while the number of traders net-short is 6.4% lower than yesterday and 1.3% higher from last week.
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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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