After a strong month in October which saw NZDUSD rise from the low of 0.6877 to a high at 0.7217, the pair is currently range bound as markets await major price catalysts. The October rally was also in tandem of the weakness in USD amid market risk-on mood. The US Dollar Index (DXY), which measures the strength of the greenback against a basket of rival currencies, rebounded strongly from the monthly low of 93.278 to 94.3 last Friday, marking the highest daily gains since mid-June. In this article, we will cover a few points which plays a part in the pair’s price movement and what is ahead for the pair.
New Zealand Covid Woes
The emerging Covid woes in New Zealand provided some headwind to the pair as the economic outlook took a hit with the latest announcement of Covid restrictions. On Monday, New Zealand’s Prime Minister Jacinda Ardern announced that the nation will extend its covid-19 curbs for another week in Auckland. With the daily cases rising to record highs in the last few days, it is projected to continue rising to peak at 200 in November according models predicting the Covid trajectory in the country.
Downbeat Chinese PMI
As a commodity pair, the kiwi price movements are influenced by China’s manufacturing sector performance. The China NBS Manufacturing Purchasing Manager Index (PMI) which is a measure of the manufacturing sector performance, unexpectedly fell to 49.2 in October, missing the market forecast of 49.7. The downbeat data was seen as bearish for the pair. Next up, traders will watch for release of October Caixin Services PMI where market forecasts a drop to 50.7 from the September data 53.4.
Fed Monetary Policy
Coming up next this week, traders will pay close attention to Wednesday’s Fed’s Monetary Policy Statement and as well as the FOMC Press Conference. General market consensus leans towards a hawkish stance from the Fed as the US economy had made incredible recovery since the March 2020 bottom. The bullish US Employment Cost Index and Core PCE Inflation numbers have reinforced the hawkish consensus around the upcoming Fed’s monetary policy. All in all, the inflation and wage data in recent months is invalidating Fed’s ‘transitory inflation’ narrative. Following that, Fed chair Jerome Powell is expected to announce that the central bank will begin tapering its quantitative easing launched in March 2020. A tapering announcement will be bullish for the USD, weighing the NZDUSD.
Technical Analysis
NZDUSD is currently in a consolidation phase as it is range bound between the 50% and 38.2% Fibonacci levels. Technical indicators like the Relative Strength Index (RSI), and Moving Average Convergence Divergence (MACD) are generally showing bullish momentum. However, we do foresee a short term retracement as MACD signal line is about to cross above the declining MACD histogram. We hold the view that 0.71336 (S1) would provide a solid support for the pair in the event of a retracement. If the pair continues to advance, 0.7215 (R1) is the immediate resistance with the upper resistance band of rising wedge as the next resistance.
Key events to watch in the coming week:
Tuesday, November 2
NZD – RBNZ Financial Stability Report, Participation Rate (Q3), Labour Cost Index (QoQ)(Q3), Employment Change (Q3), Unemployment Rate (Q3), RBNZ’s Governor Orr Speech
Wednesday, November 3
CNY – Caixin Services PMI (Oct)
USD – ADP Employment Change (Oct), ISM Services PMI (Oct), Fed Interest Rate Decision, Fed’s Monetary Policy Statement, FOMC Press Conference
Thursday, November 4
USD – Nonfarm Productivity (Q3), Initial Jobless Claims (Oct 29), Unit Labor Costs (Q3), Initial Jobless Claims 4-week average (Oct 29)
Friday, November 5
USD – Nonfarm Payrolls (Oct), Labor Force Participation Rate (Oct), U6 Underemployment Rate (Oct), Unemployment Rate (Oct)
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