Has NZDUSD finally found a floor?

NZDUSD has been a broad downward trend since the end of April, with the pair loosing around 11.5% of its value over that time. This makes it the worst performing currency in the G10 basket over that period, which is largely because of a rapid deterioration in the monetary policy outlook for NZ and the expectations of tighter interest rates in the US later this year or early next.

In June, the Reserve Bank of NZ (RBNZ) cut interest rates for the first time in four years, lobbing 25 basis points off the official cash rate, citing low inflationary pressures and an expected weakening in demand. At the same time, the bank opened the door for even looser monetary policy later this year. Since then a string of softer than expected economic numbers from NZ has firmly held this door open.

The bank is further expected to loosen monetary policy at its next meeting at the end of this month, although this somewhat depends on the health of Q2 CPI figures (due out on Thursday; exp. 0.5% q/q). A softer than expected print would likely solidify the case for a lower cash rate, but a stronger than expected number could keep the bank from cutting interest rates this time around.

It’s also worth keeping an eye on risk sentiment, which is being toyed with by Chinese equities – another day in the black today is a good sign - and the looming threat of a Grexit. A summit of EU leaders is currently underway, although some details of what to expect were leaked this morning. After last weekend’s referendum, Germany is now taking a hard-line stance with respect to a fresh bailout for Greece. German Chancellor Merkel noted before Sunday’s summit of European leaders that “the most important currency has been lost, and that is trust”. Along with some other eurozone members, Germany is questioning whether Athens can be trusted to implement the reforms promised in exchange for another bailout. Tsipras has now been given three days to past these unpopular reforms through Greek parliament before negotiations can begin.

NZDUSD

From a technical perspective, NZDUSD remains in a broad downward trend but it’s starting to look a little oversold. There’s a bullish crossover in daily MACD and price is back above 0.6700. From here we’re eyeing some important resistance around 0.6930 on the upside and 0.6630 on the downside.