"Risks for NZD/USD remain firmly skewed to the downside with China and commodity prices clearly warning of further weakness. However, in the short term sentiment is already weak and technical indicators are oversold." - ANZ.
The week ahead for the New Zealand Dollar includes the important quarterly Business Opinion Survey on Tuesday morning, which is expected to show a rise in sentiment reflecting the improved tone of the month to month economic surveys.
Later on Tuesday CPI will also be released, and according to TD Securities:
“The food and fuel components are expected to drag down headline inflation,” which may be a factor in prompting “the RBNZ into voicing a dovish tone at their January 28th policy meeting.”
However, let us not overlook Monday’s Weekly Dairy Auction, which saw and average winning price of $2,458 in the previous week and $2,210 for whole milk powder.
The dairy sector is incredibly important to New Zealand’s terms of trade and therefore we will be looking for an improvement here.
Analysts at BNZ warn that disappointment could be the order of the day as dairy prices look prone for another fall in price, given the worsened global commodity context since last auction, back on 6 January, and for the fact that whole-milk powder price futures on the NZX have dribbled off a fraction further.
On Wednesday there is the BusinessNZ Performance of Manufacturing Index for December, which saw a 54.7 result previously.
National Bank of Australia think this could be an important metric from the point of view of gauging the impact of the global slowdown:
“Can it keep an arm’s length from the global malaise in the industry? It did in November, with an index reading of 54.7.”
NZD/USD Forecast – Respite from the Selling?
"Risks for NZD/USD remain firmly skewed to the downside with China and commodity prices clearly warning of further weakness. However, in the short term sentiment is already weak and technical indicators are oversold," says SAm Tuck, ANZ's senior FX strategist.
ANZ prefer to sell rallies than position for further immediate declines.
The New Zealand to US dollar exchange rate has completed an A-B-C correction in the midst of a strong down-trend, and has recently broken lower, resuming its longer-term down-trend.
The downside break has reached its minimum price target at the 61.8% projection of the move prior to the trend-line break.
RSI is oversold indicating that there is a lessening probability of further down-side extending lower from here.
Nevertheless, a move below 0.6350 would probably be confirmation of a very strong move lower, which would be expected to reach the 100% target at 0.6300.
GBP/NZD Forecast – Steady Eddy
The pound to New Zealand dollar conversion's chart shows the beginning a counter-trend move following the completion of an A-B-C down-move.
The pair has moved steadily higher in this corrective phase.
Currently it is expected to move up to a target at the 50-day MA at 2.2480.
Given he cluster of resistance from the 50 and 200-day MA’s which lie in close proximity to each other, I would ideally wish to see a move clearly above these before predicting more upside.
For confirmation of further strength, therefore, I’d ideally want to see a break above 2.2900 – with an initial target at resistance from historic highs at 2.2988.