The New Zealand Dollar (NZD) edged closer to a one-month high on Monday, bolstered by weaker U.S. housing data released last Friday, which has fueled concerns about the strength of the U.S. economy. This data, combined with recent softer inflation and labor reports, has led traders to bet on potential interest rate cuts by the U.S. Federal Reserve in September. These expectations have undermined the U.S. Dollar (USD), providing a tailwind for the NZD/USD pair.
However, the New Zealand Dollar’s gains could be tempered by the Reserve Bank of New Zealand’s (RBNZ) unexpectedly dovish stance following a surprise rate cut last week. The earlier-than-anticipated start to the easing cycle may weigh on the Kiwi. Additionally, any signs of economic weakness in China, New Zealand’s largest trading partner, could further cap the NZD’s upside, as the currency often acts as a proxy for China’s economic health.
Traders are now turning their attention to upcoming economic indicators, including New Zealand’s Trade Balance data and the People’s Bank of China’s (PBoC) interest rate decision, both set for Tuesday. The highlight of the week will be Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole symposium on Friday, which is expected to provide insights into the Fed’s future monetary policy direction.
Daily Market Movers: NZD Gains Traction Amid Fed Rate Cut Hopes
New Zealand’s Services Index Rises: The Business NZ Performance of Services Index (PSI) improved to 44.6 in July, up from 40.7 in June, signaling a slight recovery in the services sector.
RBNZ Governor on Inflation: RBNZ Governor Adrian Orr expressed confidence on Friday that inflation is back within the 1-3% target range, reinforcing the central bank’s recent policy decisions.
U.S. Consumer Sentiment Improves: The preliminary University of Michigan Consumer Sentiment Index rose to 67.8 in August from 66.4 in July, exceeding market expectations and marking its first increase in five months.
U.S. Housing Market Weakens: Housing starts in the U.S. fell by 6.8% in July, and building permits decreased by 4.0%, adding to concerns over the U.S. economy’s momentum.
Fed Officials on Monetary Policy: Chicago Fed President Austan Goolsbee and San Francisco Fed President Mary Daly both emphasized caution in maintaining restrictive monetary policy, citing the lack of signs of an overheating economy.
Technical Analysis: NZD/USD Poised for Further Gains
The New Zealand Dollar is trading stronger, with the NZD/USD pair potentially closing above the critical 100-day Exponential Moving Average (EMA) and a descending trendline on the daily chart. A decisive close above these levels would signal a resumption of the uptrend. The 14-day Relative Strength Index (RSI) is also pointing higher, indicating further upside potential.
Key resistance levels to watch include the 0.6085-0.6090 zone, where the high from August 14 and the upper boundary of the Bollinger Band are located. A sustained break above this zone could lead to a rally toward 0.6154, the high from July 8, and potentially 0.6222, the high from June 12.
On the downside, the confluence of the 100-day EMA and the descending trendline at 0.6048 serves as the initial support level. If this support fails, the next levels to watch are 0.5974, the low from August 15, and 0.5853, the lower boundary of the Bollinger Band, which could come into play with continued selling pressure.
Related Topics:
