US dollar trends will remain very important following a fresh surge in US currency after the Federal Reserve interest rate increase. The US currency surged across the board, primarily due to the projections from individual FOMC members that there would potentially be three rate increases in 2017.
From above 0.7200 ahead of the decision, there was a slide to lows below 0.7000 on Friday with a drop below this level triggering a rash of stops and a dive to a trough below 0.6950, the lowest level since early June, before a slight recovery.
If the US dollar maintains a very strong tone, there will be little chance of a sustained New Zealand dollar rally while a significant correction in the US currency would increase the potential for a Kiwi rebound.
The US data releases are unlikely to have a major impact, although a strong reading for durable goods orders would help underpin confidence in the US outlook.
Comments from Fed Chair Yellen will be watched very closely in her speech on Monday. Any notable attempt to push back against the market’s hawkish interpretation of the Fed statement would undermine the US dollar and support the New Zealand currency. If Yellen appear comfortable with the market’s assessment, there is the potential for fresh US support, which would undermine the New Zealand dollar.
EUR/USD moves will inevitably have a significant impact and any determined move to challenge parity would undermine the New Zealand dollar.
Domestically, there are a series of significant data releases during the week. The latest building consents data will be released on Monday local time, along with the Westpac consumer sentiment data and ANZ business confidence report.
The latest Global Dairy Trade (GDT) auction is due on Tuesday during the European session and this will be the last auction of 2016 following a strong run over the past two months with four consecutive gains. A further gain in prices would boost overall confidence in the dairy outlook and support the terms of trade.
The latest trade data will be released Wednesday local time with the gain in dairy prices likely to have some favourable impact.
The most important release is likely to be the GDP data due on Thursday local time with markets expecting a slight moderation in quarterly growth to 0.8% from 0.9% previously.
There will be no immediate impact on monetary policy, especially with the Reserve Bank of New Zealand (RBNZ) not due to meet until February, but there will be a significant impact on confidence. Strong data would bolster expectations that the next move in rates will be an increase, while disappointing data would revive speculation that interest rates could still be cut again.
The latest COT data recorded a decline in short, non-commercial positions to 3,700 contracts from 3,900 the previous week, maintaining the possibility of position squaring, although the overall impact is likely to be limited.
There will be an important decline in liquidity during the week, which will increase the risk of erratic trading conditions. The New Zealand data will come out when normal trading volumes are at low levels after the US close, increasing the risk of an exaggerated reaction to the data. There will also be the risk of sharp squeezes on positions at times as liquidity fades.
Source: EconimicCalendar
Link: http://www.economiccalendar.com/2016/12/18/nzdusd-outlook-dairy-trends-provide-potential-support/