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Kiwi eyes 0.8500 as pullback continues

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Fuseworks Media
Fuseworks Media

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

The NZ Dollar continues its downward correction from the over-extended highs of early April, when bearish technical divergences warned the upside momentum above 0.8700 was waning. Initial support is now seen at 0.8500, but with the situation in Ukraine continuing to worsen there remains an extended downside risk if the global risk appetite reduces. The NZD has performed well against the AUD however, following a benign inflation reading in Australia last week. This suggests the RBA are likely to remain on hold for some time, and favours an appreciating NZD/AUD cross.

The OCR increase from the RBNZ last week was anticipated by the market, and resulted in a modest rally which was unable to break above the 0.8640 resistance level. A further hike in June remains likely, but the RBNZ indicated the extent of further increases will be data dependent. With the TWI currently around 1.7% higher than the level forecast in the March MPS, the market is reassessing the requirement for the 200pts of hikes over two years indicated in March, suggesting the Kiwi may still be expensive around current levels.

Tonight’s GlobalDairyTrade auction result will be watched closely again following the 20% fall in the previous five auctions. The impact of these falls will be evident when the Commodity Price Index for April is released on Friday, but major direction for the week is likely to come from events in the US. Thursday’s FOMC meeting is likely to see a further $10 bio of QE tapering, which will take monthly bond purchases down to $45 bio, but FED Chairman Yellen’s speech on Friday is likely to reaffirm US rates will remain low for a considerable period. The week finishes with the April Non-Farm Payrolls on Friday night, with the market looking for the creation of over 200K new jobs and a decline in unemployment to 6.6%.

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