- The Reserve Bank of New Zealand takes a more dovish tone as the economy’s cracks start to show.
- The New Zealand Dollar declines against all currencies. Against the Pound the NZD trades 0.83% lower and it has fallen more than 1.00% against the Dollar.
- The US Dollar Index trades 0.20% higher as investors take a more cautious approach due to weaker economic data.
- US Durable Goods Orders decline more than 6.00%, the largest contraction since May 2020.
NZDUSD
The New Zealand Dollar is witnessing the highest level of volatility during this morning’s Asian session. The lowest spreads and strongest price movement can be seen on the NZDUSD. The exchange rate is trading at its lowest price since February 16th after the NZD collapsed. Over the past 12 hours, the NZDUSD has fallen 1.11% primarily due to the dovish tone taken by the Reserve Bank of New Zealand and its Governor.
If we look at the 10 most traded currencies worldwide, New Zealand is the country witnessing the highest inflation and the weakest economic growth. The dovish tone taken by the RBNZ comes as a relief for locals and can support the economy. However, for the currency this simply adds more pressure. Economic weakness can primarily be seen in the New Zealand employment sector which has seen the unemployment rate rise from 3.2% to 4.00%. In addition to this, the Gross Domestic Product Growth Rate currently stands at -0.6%.
The RBNZ kept interest rates unchanged at 5.50%, but the main concern for investors were the comments made thereafter. The governor Mr Orr in his press conference said “there was very strong consensus that the official rate is sufficient”. As a result, the economy continues to remain unattractive due to weak data and potential for another hike is no longer possible. For this reason, demand has significantly fallen for the time being.
The Dollar on the other hand is seeing demand slightly rise due to poor economic data on Monday. The weaker data triggered a lower risk appetite within the market which supported the Dollar. Investors are now concerned whether the US’s GDP figure will indeed read +3.3% as per expectations considering certain data came in relatively weak. The Durable Goods Order fell 6.1%, Core Durable Goods fell -0.3% and the CB Consumer Confidence fell instead of remaining unchanged at 114.8. Throughout the remaining sessions, the price will continue to be influenced by the comments from the RBNZ, but also will depend on the Prelim GDP reading for the US this afternoon.
In terms of technical analysis, almost all indicators point towards a downward price movement which is understandable considering the bearish momentum. However, all timeframes below the 4-hour chart are currently reading oversold on the RSI. Investors should also take this into account.
USA100
The NASDAQ was the best performing index on Monday, but there continues to be a lack of bullish signals in the short term. The USA100’s price continues to remain above the 75-bar moving average and above the neutral level on most oscillators. However, the price is not maintaining bullish momentum and is failing to form higher highs. The price also continues to trade at the previous resistance level and many economists advise the price is trading at where traders believe is appropriate, hence the lack of a trend.
When we monitor the top 20 most influential stocks, 11 of the 20 ended the day higher while 9 declined. This is also an indication of no major trend within the session. From these 20 stocks, Netflix saw the largest increase (+2.39%) and Adobe saw the largest decline (1.43%).
So far, Bond Yields trade lower, which is known to support the stock market, however, the Dollar also trades higher which indicates lower investor sentiment. The next price driver for the USA100 will be the US GDP reading. Ideally investors will want to see strong growth but not strong enough to stop the Fed from cutting rates soon. Some economists are advising a GDP reading of 3.3% or slightly lower will be ideal for the stock market.
Michalis Efthymiou
Market Analyst
Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
