Fundamental
Overview
The USD rise stalled last
week as the US government shutdown delayed many key US economic reports. The
dollar “repricing trade” needs strong US data to keep going, especially on the
labour market side, so any hiccup on that front is likely to keep weighing on
the greenback. The market pricing is now back to 45 bps of easing by year-end
and 110 bps by the end of 2026. This could still be too dovish, but we will
need strong data to reprice.
In the absence of the
government data, an October rate cut is now seen as a done deal. The reality is
that an October cut was never really in question. It’s the December cut that
could be priced out in case the data strengthens. We still have three NFP and
two CPI reports before the December meeting.
The greenback erased all
the gains triggered by last week’s data in the meantime as we are likely
experiencing a pullback after a very strong rally. Other possible reasons
include the government shutdown fears and quarter-end flows.
On the NZD side, the RBNZ is
expected to cut by 50 bps tomorrow (55% probability) and bring the OCR to 2.5%,
which is the lower bound of their estimated neutral range (2.5%-3.5%). The New
Zealand dollar weakened sharply following a 0.9% contraction in the Q2 GDP
report which was much bigger than the RBNZ’s -0.3% projection.
Given that the central bank
is focused on spare capacity as a reason to cut more aggressively, traders priced
increased the bets for a 50 bps cut. The market is pricing 61 bps of easing by
year-end and 77 bps cumulatively by the end of 2026. Whether the RBNZ cuts by
25 or 50 bps, it will retain an easing bias and focus on the next quarterly CPI
report.
NZDUSD
Technical Analysis – Daily Timeframe
NZDUSD daily
On the daily chart, we can
see that the NZDUSD pulled all the way back to the key 0.5850 resistance zone. The sellers will likely
continue to step in around the resistance with a defined risk above it to
position for a drop into new lows. The buyers, on the other hand, will look for
a break higher to pile in for a rally into the major trendline around the 0.5950 level.
NZDUSD Technical
Analysis – 4 hour Timeframe
NZDUSD 4 hour
On the 4 hour chart, we can
see that we have a minor support zone around the 0.58 handle. This is where we
can expect the buyers to step in with a defined risk below the support to
position for a break above the key resistance. The sellers, on the other hand,
will want to see the price breaking lower to increase the bearish bets into new
lows.
NZDUSD Technical
Analysis – 1 hour Timeframe
NZDUSD 1 hour
On the 1 hour chart, there’s
not much else we can add here as the pair got stuck in a range with traders
waiting for new catalysts. We can see though that the price is now both at the
support zone and the lower bound of the average daily range for today (red line). This should technically
limit the downside for today and give the buyers some conviction to pile in
around these levels into the RBNZ decision.
Upcoming Catalysts
Tomorrow we have the RBNZ policy announcement. On Thursday, we
have Fed Chair Powell speaking and the US Jobless Claims (if the shutdown is
lifted). On Friday, we conclude the week with the University of Michigan
Consumer Sentiment report.
