NZD range-trade favoured

NZD range-trade favoured

By Garry Dean (Sales Trader, CMC Markets New Zealand)

Fed Chairman Janet Yellen’s assertion last week that US interest rates may begin to rise in the second quarter of 2015 weighed heavily on the New Zealand dollar. The forecast increase in the Fed Funds Rate to 1.00% at the end of 2015, and 2.25% at the end of 2016 sparked a USD rally, which abruptly halted the NZD advance above 0.8600. This has in essence defined the trading range for the week, with resistance seen at recent highs of 0.8640, and solid support at the early March lows of 0.8440.

Concerns regarding the slowdown in Chinese growth remains a risk for the NZD, but in the short term the modest weakness seen following yesterday’s disappointing China flash PMI reading was encouraging for the NZD. Market expectation of policy stimulus from Beijing to ensure growth doesn’t fall below 7.50% is becoming more widespread. Investors may note a recent Bloomberg analyst survey showed the median estimate for full year Chinese GDP dropped to the weakest annual pace since 1990, at 7.4%. Clearly the expectation of some form of policy measures to stabilise growth is increasing, and this has again provided support for the NZD and AUD overnight.

Domestic data is continuing to impress, with last week’s December GDP reading beating RBNZ forecasts and highlighting a more broad-based recovery in the New Zealand economy. Thursday sees the only local economic release, with the February Trade Balance expected to show an improvement, led again by increasing exports. The release of China’s Leading Indicator number at 15:00 NZ time today could also provide some volatility for both the AUD and NZD.

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