Technical considerations gain utmost importance
Today has been good for the NZ dollar, however the currency remains at the whims of technical considerations in this summer lull - as analysts at FXMarketAlerts attest to:
"True to form, as the market talks of key levels in NZD/USD at .7990-.8000, intra day specs go stop hunting and push through this level but with very little follow through.
"A breach of this level was suggested to bring about a push to .8200, but given that very little has happened to suggest risk sentiment is on the turn, we would see very little value, or substance in this, representing even better levels to sell - again."
Concerning the Australian vs New Zealand dollar exchange rate FXMarketAlerts say: "AUD-NZD hovering around 1.16 handle, with focus still on the 4-year 8-month lows around 1.1530-40 level, and clear break of 1.1500 handle. Speculation of option barriers at 1.1500. Though good to watch for any RBNZ interest to sell Kiwi to curb Kiwi rise vs Aussie."
Commodity currency sector sees fresh support, New Zealand earthquake hits currency markets... briefly
The Australian, New Zealand and Canadian dollars traded higher against the U.S. dollar.
"No economic data was released from any of the 3 commodity producing countries but gold prices jumped nearly 3% to trade back above $1300 an ounce. Oil prices moved lower but that did not stop the CAD from extending higher as the currency catches up to the prior rally in oil. The Reserve Bank of New Zealand meets this week and despite the rally in NZD today, a powerful earthquake that damaged buildings in its capital of Wellington raises the risk of a rate cut," says Kathy Lien at BK Asset Management.
Lien echoes the thoughts of many when she says, "thankfully while the 6.5 magnitude tremor was stronger than the 6.3 magnitude earthquake in Christchurch in February 2011, no casualties were reported."
After the earthquake initially hit in 2011, the New Zealand dollar sold off aggressively but bottomed in the month that followed after the RBNZ cut interest rates by 50bp.
It then went on to hit a record high against the U.S. dollar in August of the same year as rebuilding efforts contributed positively to the economy.
Lien says the latest earthquake could alter the landscape for the Reserve Bank of New Zealand, who meets later this week:
"With slower Chinese and Australian growth, we had been looking for the RBNZ to be dovish but they could consider lowering rates again if they feel that economic activity will be negatively effect in a meaningful way.
"Right now, investors are deeming quake damage to be minimal which explains the rally in NZD. Canadian retail sales numbers are scheduled for release tomorrow morning and given the sharp rise in wholesale sales, retail sales are expected to have increased in the month of May."