NZD:
Pressure on RBNZ
Since our
last report dated 30th Apr, NZD/USD has traded with a heavy bias towards 0.7385
low this morning. The move lower came off the back of a combination of drivers
including mounting expectation for RBNZ to cut rates following RBA’s move to
cut rate (5 May), weaker than expected 1Q wage inflation data (released 6 May)
and declining GDT dairy auction prices.
Given the
dairy sector’s significance to the NZ economy and NZ exports and that dairy
prices account for nearly 50% of the commodity price index, changes in dairy
prices can affect NZ’s export prices, which can in turn impact the terms of
trade (ToT). The terms of trade has a strong positive correlation with the
NZD/USD.
Looking
ahead we expect RBNZ to lower OCR by 25bps at its upcoming meeting on 11 Jun.
Technical chart suggests NZD/USD to continue its move lower towards 0.72
levels. Daily/Weekly momentum and oscillators remain bearish bias,
suggesting further downside. We remain better sellers of the pair on any rally
as long as the 50DMA on the upside is not broken.
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