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Can NZDUSD maintain this upward momentum


16 September 2015

Like every major FX pair NZDUSD is cautiously awaiting this week’s all-important policy meeting at the Fed, but it’s also waiting for some growth figures out of NZ tomorrow. It’s going to be a very busy day for the kiwi, which could help the pair capitalise on a recent break of the top of its former consolidation pattern.

Earlier in the week, a very strong dairy auction in NZ helped propel NZDUSD through resistance around 0.6340/50, after the pair shot lower on the back of widespread US dollar strength in response to stronger than expected US retail sales numbers. GlobalDairyTrade’s latest auction showed an encouraging 16.5% increases in prices since the last auction at the beginning of the month, the third straight positive auction result from GDT. This has increased speculation that Fonterra, the world’s largest exporter of dairy products, will increase its planned payout for the 2015/16 season, which is good news for NZ’s heavily dairy-backed export market.

NZ GDP

Looking ahead, kiwi traders are going to be closely eyeing the release of NZ’s Q2 growth figures, especially after the RBNZ’s very dovish meeting last week. The bank cut the official cash rate by 25 basis points and cut growth and inflation forecasts, opening the door for further easing. Actual GDP growth in Q2 is expected to be 0.6% q/q. The combination of stronger growth in Q2 and rising dairy prices may be enough to stay the RBNZ’s hand in October, although it may take a stronger than expected set of GDP numbers tomorrow.

FOMC and US CPI

Meanwhile, the US dollar is juggling the idea of tighter monetary policy in the US. While most of the market doesn’t expect to raise interest rates this week, last night’s retail sales did reinvigorate dollar bulls, albeit only for a short time. The real test in the lead up to the meeting will be tonight’s inflation numbers (consumer prices are expected to have fallen 0.1% m/m and core-CPI is expected to rise 0.1% m/m in August, keeping the year-on-year pace of inflation growth to 0.2%). The US economy is looking more and more primed for tighter monetary policy on the back of a strong labour market and a heightened level of economic activity, but a persistent lack of inflation may be enough to keep the FOMC from raising interest rates this time around.

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