Forex – NZD/USD Weekly Outlook: July 25-29

Posted by Erica Brooks

Forexpros – The New Zealand dollar rallied to a 26-year high against its U.S. counterpart on Friday, as appetite for riskier assets was boosted after European Union leaders agreed on a new bailout package for Greece, while expectations for a near-term interest rate hike by the country’s central bank also lent support.

NZD/USD hit 0.8673 on Friday, the pair’s highest since exchange rate controls ended in March 1985; the pair subsequently consolidated at 0.8643 by close of trade on Friday, climbing 2.15% over the week, the fourth consecutive weekly gain.

The pair was likely to find support at 0.8537, Thursday’s low and resistance at 0.8673, Friday’s 26-year high.

On Thursday, European Union leaders agreed on a second bailout package for Greece worth EUR159 billion, with bondholders agreeing to contribute to the bailout.

EU officials also expanded the role of the European Financial Stability Facility, allowing it to purchase bonds from indebted nations, assist troubled banks and offer credit lines.

Earlier in the week, expectations for a near-term rate hike by the Reserve Bank of New Zealand were bolstered after official data showed that consumer prices rose at an annualized rate of 5.3% in the second quarter, above expectations for a 5.1% rise and the fastest pace since 1991.

At present, benchmark interest rates are 2.5% in New Zealand, compared with zero in the U.S., attracting investors to the nation’s higher-yielding currency.

Meanwhile, in Washington, the U.S., Senate rejected a USD3 trillion debt-cutting plan on Friday, adding to fears over a potential default ahead of the August 2 deadline to raise the country’s USD14.3 trillion debt ceiling.

Ratings agency Standard & Poors said Thursday that there is a 50-50 chance that the triple-A credit rating of the U.S. could be cut within three months.

In the week ahead, as concerns over the sovereign debt crisis in the euro zone recede, investors will be focusing on U.S. efforts to agree on a USD3 trillion deficit-reduction plan.

Markets will also be looking towards Friday’s data on U.S. second quarter gross domestic product, in order to gauge the strength of the U.S. economic recovery, while the RBNZ is to announce its benchmark interest rate.

Ahead of the coming week, Forex Pros has compiled a list of these and other significant events likely to affect the markets. The guide skips Monday, as there are no relevant events on this day.

Tuesday, July 26

New Zealand is to release government data on its trade balance, the difference in value between imported and exported goods and services over the month.

Later in the day, the U.S. is to publish government data on new home sales, a leading indicator of economic health, as well as data on consumer confidence and house price inflation.

Wednesday, July 27

New Zealand is to publish data on business confidence, a leading indicator of economic health.

The U.S. is to publish official data on durable goods orders, a leading indicator of production, as well as government data on crude oil stockpiles. Later in the day, the Federal Reserve is to publish its Beige Book, which contains data the bank looks at when making its next interest rate decision.

Thursday, July 28

The Reserve Bank of New Zealand is to announce its official cash rate. The announcement will be followed by the banks rate statement, which discusses the economic outlook and offers clues on the outcome of future rate decisions.

Meanwhile, the U.S. is to release government data on initial jobless claims, a leading indicator of economic health, as well as industry data on pending home sales.

Friday, July 29

New Zealand is to publish government data on building consents, a leading gauge of future construction activity.

The U.S. is to round up the week with preliminary data on second quarter GDP, as well as a preliminary report on the GDP price index and an employment cost index. The U.S. is also to publish data on manufacturing activity in the Chicago area, while the University of Michigan is to publish revised data on consumer sentiment and inflation expectations.