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NZD/USD Rates Poised to rise Despite Extension of Covid-19 Restrictions
Summary:
S&P 500 INDEX OUTLOOK:
The S&P 500 index rallied to an all-time high alongside the Nasdaq Composite, against the backdrop of thin volume. It is worth noting that 66.5% of the index’s components ended lower — a weird phenomenon that was last observed back during the 2000–2001 ‘Dot Com’ bubble.
Uncertainties surrounding the approval of a second US fiscal stimulus package remain, while a review of the phase-one US-China trade deal is in limbo. These are two potential catalysts for equity market volatility.
Sector-wise, consumer discretionary (+1.46%), communication services (+1.09%) and information technology (+0.39%) were leading gains, whereas energy (-1.71%), financials (-0.67%) and industrials (-0.54%) were lagging. The sectoral performance shows a very mixed, if not bearish-biased pattern.
Although a two-week period is hardly extensive, the impact of restrictions is likely to be significant and is immediately reflected in high-frequency mobility data. With the number of residents driving and walking substantially declining to the lowest levels since late-May.
Of course, this drops off in mobility is due to the imposition of not just stage-three restrictions in Auckland but stage-two restrictions nationally.
Nevertheless, it is reflective of an economy at risk of unwinding the progress made since emerging from enforced dormancy just over two months ago.
With that in mind, the New Zealand Dollar may fall out of favor with investors ahead of Ardern’s scheduled reassessment of restrictions on August 21.
S&P 500 Index Sector performance 18–8–2020
RBNZ THROW THE KITCHEN SINK AT NZD
The Reserve Bank of New Zealand certainly didn’t hold back at its August meeting, expanding “the Large-Scale Asset Purchase (LSAP) program up to $100 billion” and flagging the potential deployment of “additional monetary instruments”, such as negative interest rates and foreign asset purchasing.
Unsurprisingly, the New Zealand Dollar plunged after the announcement and may continue to come under pressure as the RBNZ notably highlighted “that a rise in the New Zealand dollar exchange rate has moderated local exporters’ incomes”.
Perhaps in justification of the potential future introduction of alternative monetary policy measures.
As per the specialist of PipsWin.com, the central bank is expected to keep the official cash rate at 0.25% “for at least a year”, it noted that it “could choose to initiate large-scale purchases of foreign assets [that] would create a flow of demand for foreign currency in exchange for New Zealand dollars, putting pressure on the exchange rate”.
The mere whisper of foreign exchange intervention, alongside the possible implementation of a currency-devaluing negative interest rate policy, will likely result in increased sensitivity in NZD rates to upcoming economic data.
Better-than-expected economic releases probably underpin the currency against its major counterparts and temper the need for the RBNZ to resort to such drastic measures.
Conversely, underwhelming data is more than likely to intensify any potential sell-off as investors rapidly price in the provision of additional monetary stimulus.
NZDUSD-Rates-Poised-to-Rise-Despite-Extension-of-Covid-19-Restrictions_body_Picture_4.png
NZD/USD DAILY CHART — 21-DMA STIFLING BUYERS
Fundamentals aside, the outlook for NZD/USD rates is skewed to the upside as price remains constructively perched above the trend-defining 50-day moving average and the RSI climbs over its neutral midpoint.
The MACD indicator appears to be gearing up for a bullish crossover, which may intensify buying pressure in the coming days and result in NZD/USD resuming the uptrend extending from the yearly low (0.5469).
Furthermore, the price has been guided higher by a bullish Ascending Channel over the last 12 weeks, and with it still intact, a surge back towards 2020 open (0.6733) looks in the offing.
A daily close above the 21-DMA (0.66250 could invigorate buying pressure and generate a push to test the monthly high (0.6689). With a close above last month’s high needed to validate bullish potential.
NZDUSD-Rates-Poised-to-Rise-Despite-Extension-of-Covid-19-Restrictions_body_nzdui.png
So, How will it end up? Let me know your frank thoughts.
- S&P 500, US DOLLAR, HANG SENG INDEX OUTLOOK:
- S&P 500 index hit a record high, but only 33.5% of the companies were in the green
- The US Dollar Index (DXY) broke below support at 92.6, hitting a fresh 2-year low
- Hang Seng Index may open lower, failing to catch up with the rally in US markets
S&P 500 INDEX OUTLOOK:
The S&P 500 index rallied to an all-time high alongside the Nasdaq Composite, against the backdrop of thin volume. It is worth noting that 66.5% of the index’s components ended lower — a weird phenomenon that was last observed back during the 2000–2001 ‘Dot Com’ bubble.
Uncertainties surrounding the approval of a second US fiscal stimulus package remain, while a review of the phase-one US-China trade deal is in limbo. These are two potential catalysts for equity market volatility.
Sector-wise, consumer discretionary (+1.46%), communication services (+1.09%) and information technology (+0.39%) were leading gains, whereas energy (-1.71%), financials (-0.67%) and industrials (-0.54%) were lagging. The sectoral performance shows a very mixed, if not bearish-biased pattern.
Although a two-week period is hardly extensive, the impact of restrictions is likely to be significant and is immediately reflected in high-frequency mobility data. With the number of residents driving and walking substantially declining to the lowest levels since late-May.
Of course, this drops off in mobility is due to the imposition of not just stage-three restrictions in Auckland but stage-two restrictions nationally.
Nevertheless, it is reflective of an economy at risk of unwinding the progress made since emerging from enforced dormancy just over two months ago.
With that in mind, the New Zealand Dollar may fall out of favor with investors ahead of Ardern’s scheduled reassessment of restrictions on August 21.
S&P 500 Index Sector performance 18–8–2020
RBNZ THROW THE KITCHEN SINK AT NZD
The Reserve Bank of New Zealand certainly didn’t hold back at its August meeting, expanding “the Large-Scale Asset Purchase (LSAP) program up to $100 billion” and flagging the potential deployment of “additional monetary instruments”, such as negative interest rates and foreign asset purchasing.
Unsurprisingly, the New Zealand Dollar plunged after the announcement and may continue to come under pressure as the RBNZ notably highlighted “that a rise in the New Zealand dollar exchange rate has moderated local exporters’ incomes”.
Perhaps in justification of the potential future introduction of alternative monetary policy measures.
As per the specialist of PipsWin.com, the central bank is expected to keep the official cash rate at 0.25% “for at least a year”, it noted that it “could choose to initiate large-scale purchases of foreign assets [that] would create a flow of demand for foreign currency in exchange for New Zealand dollars, putting pressure on the exchange rate”.
The mere whisper of foreign exchange intervention, alongside the possible implementation of a currency-devaluing negative interest rate policy, will likely result in increased sensitivity in NZD rates to upcoming economic data.
Better-than-expected economic releases probably underpin the currency against its major counterparts and temper the need for the RBNZ to resort to such drastic measures.
Conversely, underwhelming data is more than likely to intensify any potential sell-off as investors rapidly price in the provision of additional monetary stimulus.
NZDUSD-Rates-Poised-to-Rise-Despite-Extension-of-Covid-19-Restrictions_body_Picture_4.png
NZD/USD DAILY CHART — 21-DMA STIFLING BUYERS
Fundamentals aside, the outlook for NZD/USD rates is skewed to the upside as price remains constructively perched above the trend-defining 50-day moving average and the RSI climbs over its neutral midpoint.
The MACD indicator appears to be gearing up for a bullish crossover, which may intensify buying pressure in the coming days and result in NZD/USD resuming the uptrend extending from the yearly low (0.5469).
Furthermore, the price has been guided higher by a bullish Ascending Channel over the last 12 weeks, and with it still intact, a surge back towards 2020 open (0.6733) looks in the offing.
A daily close above the 21-DMA (0.66250 could invigorate buying pressure and generate a push to test the monthly high (0.6689). With a close above last month’s high needed to validate bullish potential.
NZDUSD-Rates-Poised-to-Rise-Despite-Extension-of-Covid-19-Restrictions_body_nzdui.png
So, How will it end up? Let me know your frank thoughts.