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Newzealanddollar

NZD USD - FUNDAMENTAL DRIVERSNZD FUNDAMENTAL BIAS: WEAK BULLISH 1. Monetary Policy The RBNZ underwhelmed some market participants who were looking for a 50bsp hike as the bank only delivered on a 25bsp hike as consensus was expecting. Even though the NZD took a plunge after the meeting, we don’t think markets are really giving NZD the upside it deserves after the Nov RBNZ decision. Not referring to the knee-jerk lower after the 25bsp hike of course as that was fully priced in and always ran the risk of underwhelming the bulls, but the outlook in the MPR justifies more NZD strength. The upgrades to the economic outlook between Aug and Nov was positive, with growth seen lower in 2022 but much higher in 2023, CPI is seen higher throughout 2022 and 2023, the Unemployment rate seen lower throughout the forecast horizon, and of course the big upgrade to the OCR which is now seen at 2.6% by 2024, and the bank has brought forward their expectation of reaching the 2.0% neutral rate with 5 quarters. Of course, incoming data will be important (as always) and any new developments with the new Omicron variant will be watched. But barring any major deterioration in the econ data, the recent sell off in the NZD does seem at odds with the fundamental, policy and economic outlook. 2. Economic and health developments Even though the NZ government has abandoned a covid-zero strategy, a ramp in Omicron cases can of course see further restrictions being announced if things get serious so the virus is worth keeping on the radar. Turning to the economic data, the recent macro data has been much better than both the markets and the RBNZ had expected, but markets have not been too bothered with the incoming data and have not given the NZD the upside it deserves in our opinion. For now, based on the economic and policy outlook the NZD still seems undervalued at current prices, but we need to keep close track of the overall risk sentiment given the associated risks of the new variant. 3. Global Risk Outlook As a high-beta currency, the NZD benefited from the market's improving risk outlook coming out of the pandemic as participants moved out of safe-havens. As a pro-cyclical currency, the CAD enjoyed upside alongside other cyclical assets supported by reflation and post-recession recovery best. If expectations for the global economy remains positive the overall positive outlook for risk sentiment should be supportive for the NZD in the med-term, but recent short-term jitters are a timely reminder that risk sentiment is also a very important short-term driver. 4. CFTC Analysis Latest CFTC data showed a positioning change of -424 with a net non-commercial position of -8845. Positioning changes in the past 3 to 4 weeks have shown that a lot of the previous optimism about the NZD was unwound, especially for leveraged funds. Do we think the NZD should be higher? Yes, we do, but markets have not been having it for the past few weeks. For now, it might be best to wait for incoming economic and virus data to provide us with short-term catalysts before we engage the currency back to the upside. 5. The Week Ahead In the week ahead the calendar for the NZD is very light, which means overall risk sentiment will be a key driver. The fact that the big upside in risk assets running into the end of the year did not really see any meaningful upside in the NZD (despite its fundamental outlook) was quite disappointing, and means sentiment is still muddy for the NZD at this juncture. USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy A lot more hawkish than expected is how the Fed’s Dec decision can be summed up. The Fed doubled the pace of tapering to $30 billion per month which will see the QE program conclude by March 2022 as was widely expected. The big change came from the updated Summary of Econ Projections where the median dot plot pencilled in 3 hikes for the Fed next year (up from just shy of 1 hike projected just 3 months ago), confirming money market and Fed Fund Future expectations. Fed Chair Powell explained they hadn’t decided whether to pause between the end of tapering and a first hike but reiterated that rates will likely only rise when the taper has concluded. Another positive shift was Powell’s comments that the balance of goals means it could possibly raise rates before full employment has been met due to high inflation , and also stated that with inflation above target, they cannot wait too long to get to maximum employment with current levels of inflation described as a threat to full employment. The hawkish tilt even went so far that the bank started to discuss the balance sheet but said they didn't make any decisions on when the balance sheet would shrink. Even though the dots projected 3 hikes for 2022, the updated rate hike trajectory only showed 1 additional hike over the forecast horizon, which combined with a lower terminal rate was less hawkish than some had feared. Nonetheless, with this recent meeting the Fed is now the second most hawkish CB after the RBNZ and should be supportive for the USD in the med-term . This past week’s meeting minutes also revealed that the bank has started discussing QT with majority of members thinking it’s appropriate to start QT soon after rate lift off which was a much more hawkish tilt than expected from the Fed. 2. Real Yields With the hawkish tilt from the Fed, it should see breakeven inflation rates fall faster than US10Y as a more aggressive Fed should see med-term growth & inflation expectations fall. Rising real yields should be good for the USD as well and one to keep on the radar, especially after this weeks divergence. 3. Global Risk Outlook What happens to growth and inflation this year will be key for the USD, not only growth and inflation in the US though but also on a global scale. The USD usually does bad in reflationary environments (where growth and inflation accelerates globally), while the USD usually does very well when growth and inflation decelerates globally). So, expectations that we are seeing a slowdown in both of them globally should be a positive input for the USD in the med-term . However, it also means there will be a lot of focus on the incoming data to see how it develops. 4. CFTC Analysis Latest CFTC data showed a positioning change of +2289 with a net non-commercial position of +39078. With large specs net-longs close to 2019 highs and leverage funds USD longs also looking stretched, and with a lot of the Fed hawkishness arguably priced in, the USD has been looking vulnerable to some unwinding, which is what we saw this past week. Even though the Fed remains on a hawkish path (for now) and the USD remains bullish from a fundamental outlook point of view, with positioning where it is right now, any recovery in risk sentiment or bad economic data in the US relative to the rest of the world could continue to add some pressure on the Greenback in the short-term. However, it will take a lot to change the overall fundamental bullish outlook given what markets are expecting from 2022. 5. The Week Ahead In the week ahead all eyes will be on US CPI as the main event. Even though there are expectations for inflation to slow, we are not there yet as participants are expecting yet another strong increase for the YY print with the headline expected to push above 7% and the Core measure expected well above 5%. Are these numbers that will scare the markets or the Fed, arguably not, because what more is there to price in. With markets already pricing in 3 hikes (a high probability of a first one in March) and pricing in higher probabilities of more than 3 hikes alongside QT, this week’s print needs to be something truly exceptional to see even more priced in. Thus, just like with NFP last week, we are anticipating more of a downside risk for the USD given the very high bar set by the markets. With everything that has been priced in for the Fed already, an unexpected beat can open up some decent downside in the USD. Just keep in mind that will be tactical trades as the fundamental outlook remains bullish for the USD.
by thunderpips
NZDUSD (New Zealand Dollar/U.S. Dollar) Currencies Analysis Fundamentals: NZD/USD remains on track to negate the head-and-shoulders formation from earlier this year after defending the March low (0.6943), but failure to push above the March high (0.7307) may keep the exchange rate within a defined range as the key reversal pattern unravels. The recent advance in NZD/USD looks to have sputtered ahead of the Federal Reserve interest rate decision as it pulls back from a fresh monthly high (0.7269), but more of the same from the Federal Open Market Committee (FOMC) may do little to derail the appreciation in the exchange rate as the central bank relies on its non-standard tools to achieve its policy targets. It seems as though Chairman Jerome Powell and Co. will retain the current course for monetary policy after updating the Summary of Economic Projections (SEP) at the March meeting as the central bank aims to “achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time.” The outcome based approach for monetary policy suggests the FOMC will stay on track to “increase our holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month” as the central bank anticipates a transitory rise in inflation to occur in 2021, and the committee may endorse a dovish forward guidance throughout the first half of the year as Fed officials are slated to update the SEP at the next quarterly meeting in June. In turn, the decline from the yearly high (0.7465) may turn out to be a correction in the broader trend rather than a key reversal as NZD/USD trades back above the neckline, and the appreciation in the exchange rate may continue to coincide with the renewed tilt in retail sentiment as the crowding behavior from 2020 resurfaces. The IG Client Sentiment report shows 37.18% of traders are currently net-long NZD/USD, with the ratio of traders short to long standing at 1.69 to 1. The number of traders net-long is 1.54% higher than yesterday and 2.94% lower from last week, while the number of traders net-short is 5.91% lower than yesterday and 12.34% higher from last week. The decline in net-long position comes as NZD/USD pulls back from a fresh monthly high (0.7269), while the IG Client Sentiment index still holds around 1.69 as 35.58% of traders were net-long the pair last week. With that said, the decline from the yearly high (0.7465) may turn out to be a correction in the broader trend rather than a key reversal as the crowding behavior from 2020 resurfaces, but need a move above the March high(0.7307) to negate the head-and-shoulders formation as it largely lines up with the right-shoulder. Technical Analysis: there exist a Hidden Bullish Divergence of Price and MACD which is the sign of Bullish Trend Continuation and we are Targeting the Parallels legs of Fibonacci Projection of the Impulsive wave and its retracement to the Fibonacci Retracement Golden zone.
Long
by BitonGroup
NZD/USD downtrend ready to resume?NZD/USD pointedly pushed below congestion area support anchored at 0.6798, seemingly confirming a downside break on a daily closing basis. A subsequent retest of this barrier as resistance seems to be struggling for momentum, bolstering the argument for bearish follow-through. A relatively minor layer of initial support lines at up 0.6737, followed by the 2021 swing bottom at the 0.67 figure. Alternatively, re-establishing a foothold above the 0.68 mark sees the next layer of resistance capped at 0.6868, with scope for a push above the 0.69 handle thereafter if buyers manage a breach.
Short
by IlyaSpivak