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FX TALKING POINTS:

  • USD/CAD Tumbles to Fresh Monthly-Low Following Lackluster U.S. Consumer Price Index (CPI). Bearish Series Takes Shape Ahead of Canada Employment Report.
  • NZD/USD Eyes November-Low (0.6780) as Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr Endorses Wait-and-See Approach for Monetary Policy.
Image of daily performance for major currencies

USD/CAD continues to give back the advance from the previous month as fresh data prints coming out of the U.S. economy highlight a limited risk for above-target inflation, with the pair at risk for a further decline as Canada’s Employment report is anticipated to show a 20.0K expansion in April. In contrast, the New Zealand dollar remains under pressure as the Reserve Bank of New Zealand (RBNZ) keeps the cash rate at the record-low of 1.75%, and NZD/USD appears to be on track to test the November-low (0.6780) as it extends the bearish sequence from earlier this week.

USD/CAD TUMBLES TO FRESH MONTHLY-LOW FOLLOWING LACKLUSTER U.S. CONSUMER PRICE INDEX (CPI)

Image of daily performance for USDCAD

USD/CAD slips to a fresh monthly-low (1.2743) as updates to the U.S. Consumer Price Index (CPI) dampen bets for four Fed rate-hikes in 2018, and the exchange rate stands at risk for further losses as it carves a fresh series of lower highs & lows.

Despite the uptick in the headline print, a deeper look at the report showed the core CPI holding steady at an annualized 2.1% for the second straight month in April, while growth in Real Average Hourly Earnings narrowed to 0.2% from a revised 0.3% in March.

Keep in mind, the recent developments should keep the Federal Open Market Committee (FOMC) on course to further normalize monetary policy as the central bank largely achieves its dual mandate, but the limited threat for above-target inflation may push Chairman Jerome Powell and Co. to tame bets for an extending hiking-cycle as ‘inflation on a 12-month basis is expected to run near the Committee's symmetric 2 percent objective over the medium term.

With that said, attention now turns to Canada’s Employment report, which is anticipated to show the economy adding 20.0K jobs in April, and a positive development may fuel the recent decline in USD/CAD as it puts pressure on the Bank of Canada (BoC) to deliver another rate-hike later this year.

USD/CAD DAILY CHART

Image of USDCAD daily chart
  • Downside targets are starting to come back on the radar for USD/CAD as it snaps the monthly opening range, with the pair at risk for a larger decline as a fresh bearish series takes shape.
  • Need a break/close below the 1.2720 (38.2% retracement) to 1.2770 (38.2% expansion) to open up the next area of interest around 1.2620 (50% retracement), with the next downside hurdle coming in around 1.2440 (23.6% expansion) to 1.2510 (78.6% retracement), which sits just beneath the April-low (1.2527).

For more in-depth analysis, check out theQ2 Forecast for the U.S. Dollar

NZD/USD EYES NOVEMBER-LOW (0.6780) AS RESERVE BANK OF NEW ZEALAND (RBNZ) GOVERNOR ADRIAN ORR ENDORSES WAIT-AND-SEE APPROACH FOR MONETARY POLICY

Image of daily performance of NZDUSD

NZD/USD remains under pressure as the Reserve Bank of New Zealand (RBNZ) endorses a wait-and-see approach for monetary policy, and the exchange rate appears to on track to test the November-low (0.6780) as it carves a bearish sequence.

Fresh remarks from the RBNZ suggest the central bank is in no rush to alter the forward guidance as Governor Adrian Orr keeps the official cash rate at the record-low of 1.75% and expects borrowing-costs to stay at the ‘expansionary level for a considerable period of time.’

It seems as though the RBNZ will retain the current policy throughout 2018 asannual CPI inflation is expected to be lower than projected in the February Statement,’ and recent price action in NZD/USD raises the risk for a further decline in the exchange rate as the bearish momentum from earlier this year appears to be reasserting itself.

NZD/USD DAILY CHART

Image of NZDUSD daily chart
  • String of lower highs & lows keeps the downside targets on the radar for NZD/USD, with a close below the 0.6950 (61.8% expansion) to 0.6960 (38.2% retracement) region raising the risk for a move back towards the Fibonacci overlap around 0.6820 (23.6% retracement) to 0.6870 (78.6% expansion).
  • Next area of interest comes in around 0.6780 (100% expansion), which lines up with the November-low, followed by the 0.6710 (61.8% expansion) region.
  • Rather than diverging with price, recent developments in the Relative Strength Index (RSI) also reinforces a bearish outlook for the NZD/USD rate as the oscillator pushes back into oversold territory.

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.