Yahoo Finance NZD/USD Fundamental Daily Forecast – Reversing Earlier Weakness on China Market Rebound
The New Zealand Dollar is trading higher on Friday, reversing earlier weakness. The currency turned higher on the back of data that showed China’s economy grew 6.5 percent in the third quarter, a tick short of forecasts and the slowest pace since the global financial crisis. Buyers could also be responding to slightly better demand for risky assets after Thursday’s steep sell-off in U.S. equity markets.
At 0640 GMT, the NZD/USD is trading .6570, up 0.0026 or +0.40%.
Earlier in the week, the NZD/USD surged to its highest level since October 2 after government data showed quarterly consumer inflation grew by 0.9%. This was better than the 0.7% forecast. It was also more than double the previous quarter’s 0.4% gain.
However, the Forex pair topped on Wednesday at .6602 and posted a technically bearish closing price reversal top after the release of the minutes from the U.S. Federal Reserve’s September meeting. The hawkish minutes showed members were confident in the current path of interest rate hikes and wary of frothiness in financial markets.
The minutes also showed officials talking over plans for more rate hikes, with some saying there could be a time when the central bank should exceed a neutral level in favor of more restrictive policy. Restrictive interest rates would likely be used to clamp down on inflation overshooting the Fed’s target and to address “the risk posed by significant financial imbalances.”
On Thursday, the NZD/USD was pressured by lower demand for risky assets and higher U.S. Treasury yields. U.S. stocks fell sharply, adding to already steep losses for the month of October. The declines added to the market’s steep losses for the month.
Among the reasons for the selling, according to investors, were worries about the U.S.-China trade war, rising interest rates and lingering worries about possible overvalued U.S. tech stocks.
Forecast
The NZD/USD reversed earlier weakness on Friday after Chinese regulators pledged further support as the trade war with the United States sparked a blistering selloff in domestic stock markets. After the early session sell-off, China’s stock market rebounded strongly. This helped encourage short New Zealand Dollar traders to aggressively cover their positions, sending the currency higher.
The direction of the NZD/USD the rest of the session on Friday is likely to be dictated by the direction of U.S. Treasury yields and U.S. equity prices. However, if U.S. stock markets recover from Thursday’s losses then look for the short-covering rally to continue. Another spike higher in U.S. Treasury yields and further weakness in the stock market will likely drag the New Zealand Dollar lower.
This article was originally posted on FX Empire
