The New Zealand dollar maintains positive ground amid rising Fed interest rate cut expectations

• The New Zealand dollar extends its rally in the Asian session on Monday.
• Growing bets on a Fed rate cut in September are pulling the USD lower and supporting the pair.
• Traders await Tuesday’s New Zealand trade balance data and PBoC interest rate decision for further impetus.

The New Zealand Dollar (NZD) gathers strength on Monday. Weaker US housing data on Friday added to concerns about the strength of the US economy, particularly after recent weaker inflation and labor force reports. Traders are placing more bets on interest rate cuts from the US Federal Reserve in September undermining the US dollar (USD) and creating a tailwind for NZD/USD.

However, the Reserve Bank of New Zealand’s (RBNZ) dovish stance after a surprise interest rate cut last week could hurt Kiwis as the easing cycle came much earlier than expected. Additionally, any sign of a weaker Chinese economy could limit upside for China’s NZD proxy, with China being New Zealand’s largest trading partner.

Traders will monitor New Zealand’s trade balance data and the People’s Bank of China (PBoC) interest rate decision on Tuesday. The highlight this week will be Fed Chairman Powell’s speech at the Jackson Hole Symposium on Friday. This event could provide some clues about the Fed’s pace of easing guidance.

Daily Digest Market Movers: NZD gains ground on Fed rate cut hopes

• Business NZ’s Service Performance Index (PSI) in New Zealand improved to 44.6 in July from a previous reading of 40.7, Business NZ said on Monday.
• RBNZ Governor Adrian Orr said on Friday the committee had reached a very strong level of confidence that low and stable inflation was back in the 1-3% range.
• The preliminary University of Michigan consumer sentiment index improved to 67.8 in August from a previous reading of 66.4, above the market consensus of 66.9. This figure rose for the first time in five months.
• U.S. housing starts fell 6.8 percent in July to 1.238 million units, compared with June’s 1.1 percent increase, while building permits fell 4.0 percent in July after which increased by 3.9% in June.
• Federal Reserve Bank of Chicago President Austan Goolsbee said Sunday that the U.S. economy shows no signs of overheating, so Fed policymakers should be cautious about keeping policy tight longer than necessary.
• San Francisco Fed President Mary Daly said the US central bank needs to take a gradual approach to reducing borrowing costs, according to the Financial Times.

Technical Analysis: The New Zealand Dollar’s uptrend is likely to resume

The New Zealand dollar is trading on a stronger note on the day. The NZD/USD pair appears to be closing above the 100-day exponential moving average (EMA) and the downtrend line on the daily chart. If the pair closes decisively above this level, it will resume the uptrend. The 14-day Relative Strength Index (RSI) points higher above the median line near 56.60, the potential for further upside.

The immediate resistance levels to watch are the 0.6085-0.6090 area, representing the August 14 high and upper bound of the Bollinger Band. Sustained trading above this level could see a rally to 0.6154, the July 8 high. The next barrier is seen at 0.6222, the June 12 high.

On the other hand, the confluence of the 100-day EMA and the downtrend line at 0.6048 acts as an initial support level for NZD/USD. The additional downside filter to watch is 0.5974, the August 15 low. Any further selling will see a decline to 0.5853, the lower bound of the Bollinger Band.