The Kiwi dollar will be in focus this week as a relatively light economic calendar puts a spotlight on risk events from New Zealand.
The Reserve Bank of New Zealand will announce their cash rate and release a statement on Wednesday and the latest Global Dairy Trade (GDT) report is scheduled to come out on Tuesday.
Despite a more cautious stance from the central bank at their latest meeting and recent declines in GDT auction prices, the Kiwi dollar was strongly bid on Monday, ahead of the major risk events.
The New Zealand dollar is the strongest currency among the majors shortly ahead of the North American close while the British pound has lagged. Strength in the Kiwi is notable as the currency was persistently weaker than its major counterparts in the first half of the month.
RBNZ’s Governor Wheeler took a more dovish than expected stance in recent communication and at the last central bank meeting. Wheeler stated that the odds of the next rate decision being a cut or hike are roughly equal which contradicted market expectations of a more neutral stance following a well-communicated easing cycle that ended in late 2016.
NZD/USD rallied in the Asian session on a broader dollar decline to scale above the high posted shortly after Wednesday’s Fed meeting. A dollar recovery from the European open led to a 4-hour bearish shooting star print but the candlestick pattern and a dollar reversal did not elicit a sustained turn lower in the pair.
The Kiwi dollar fell sharply in the first half of the month but this did not result in a notable position adjustment in the latest COT report. After shifting to a net short among non-commercials in the prior week, there was only a marginal build of $80 million in the week to March 14th to bring the net short to $388 million. The Kiwi remains the only net short among the major commodity currencies although the broader Fed-inspired dollar decline that followed the report cutoff date is likely to have impacted positioning.
The next major area of selling interest in NZD/USD is found at 0.7134 as it held the pair higher on two attempts in February. A sustained break above Wednesday’s high of 0.7048 combined with better than expected economic releases from New Zealand could result in a rapid move towards the level. The 200 DMA resides shortly above the level, currently at 0.7151, providing additional resistance.
Downside support at the psychological 0.7000 has not indicated a strong presence of buyers as a decline in the exchange rate on Thursday resulted in a daily close below the level. Nevertheless, the level will remain pivotal for a near-term directional bias and a sustained break would be required to reintroduce strong selling pressure similar to what was seen earlier this month.