New Zealand Dollar To Take Cues From Risk Trends, Rate Expectations

Fundamental Forecast for New Zealand Dollar: Bearish

• NZDUSD Creeps Towards 8080 Fibonacci Level
• NZDUSD: Prices Nearing Major Resistance Cluster
• NZD/USD Classic Technical Report 07.06.2012

The New Zealand dollar struggled to hold above the 0.8000 figure as market participants scaled back their appetite for risk and the high-yielding currency may track lower in the days ahead should the fight to safety gather pace. As the economic docket remains fairly light for the following week, we should see risk sentiment dictate price action for the NZDUSD, but easing bets for lower borrowing costs may increase the kiwi's appeal as policy makers strike an improved outlook for the region.

Indeed, New Zealand Finance Minister Bill English argued that the region is 'overly concerned about the international situation' during an interview earlier this week, and held an improved outlook for the next six-months as he expects the rebuilding efforts from the Christchurch earthquake to boost economic activity. As a result, Mr. English said the economy is on track to growth 2-3 percent over the next few years, and the gradual recovery certainly limits the scope of seeing another rate cut by the Reserve Bank of New Zealand as Governor Alan Bollard maintains a balanced tone for monetary. According to Credit Suisse overnight index swaps, market participants are certainly scaling back bets for lower borrowing costs as they see the benchmark interest rate sitting at 2.50% over the next 12-months, and we may see the New Zealand dollar outperform against its major counterparts as the RBNZ moves away from its easing cycle. Nevertheless, should we see a slew of positive developments coming out of the region next week, a string upbeat data should help to prop up the high-yielding currency, but the technical outlook certainly paints a bearish picture for the NZDUSD as it appears to be carving out a lower top in July.

As the relative strength index on the NZDUSD falls back from a high of 65, the pullback in the oscillator certainly casts a bearish outlook for the pair, and we may see the downward trend from the 2011 high continue to take shape as risk sentiment falters. In turn, we may see the 200-Day SMA (0.7950) give out next week, and we may see the pair come up against the 23.6% Fibonacci retracement from the 2010 low to the 2011 high around 0.7900-10, which coincides with the 20-Day SMA at 0.7909. - DS