FxWirePro: NZD/USD likely to start forming support base around 0.7 area

After reaching the highest level since April 2015, back in July this year around 0.755 area, the New Zealand dollar has declined steadily as the Reserve Bank of New Zealand (RBNZ) resisted calls to hike interest rates and took a verbal stance against the Kiwi. While the yield spread between the United States and New Zealand shows that the market is pricing a much higher interest rates than the current 175 basis points maintained by the central bank. In addition to that, consumer prices in New Zealand increased 1.7 percent year-on-year in the second quarter of 2017, below market expectations of 1.9 percent and down from 2.2 percent in the previous period which was the highest in five years. The political turmoil in New Zealand, where ruling New Zealand’s National Party is struggling to form a ruling coalition despite winning most seats, has also weighed on the Kiwi.

The Kiwi has declined almost 500 pips from the July peak and is currently trading at 0.706 against the dollar. Despite the above-mentioned trouble, we expect the Kiwi to start forming a support base around 0.7 area as the political trouble eases.

We remain bullish on Kiwi with a target around 0.825 area against the USD.

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