NZD/USD Rebounds, But Caution Remains Ahead of US Economic Data

17 Okt

The NZD/USD pair rebounded today from a key demand area, but caution remains among traders as critical US economic data looms. The upcoming reports for USD Core Retail Sales (m/m), Retail Sales (m/m), and Unemployment Claims are expected to inject volatility into USD-correlated currency pairs, particularly affecting both EUR/USD and NZD/USD. These data points are crucial for assessing the strength of the US economy, and stronger-than-expected results could further support the US Dollar (USD), applying downward pressure on other currencies like the euro and the New Zealand Dollar (NZD).

China's Economic Data in Focus for NZD
In addition to US developments, market participants are likely to remain cautious ahead of key economic data from China, New Zealand’s top trading partner, scheduled for release on Friday. The upcoming GDP and Retail Sales figures will be closely monitored, especially after the recent disappointment in China’s CPI and PPI numbers. Weak results from China could have negative implications for the NZD, given New Zealand’s heavy reliance on trade with China.

The New Zealand Dollar has faced additional challenges, as China's recently announced fiscal stimulus measures have failed to lift market sentiment. Investors remain uncertain about the scale and impact of the stimulus package, further weighing on the outlook for the NZD.

USD Strength and Federal Reserve Outlook
Meanwhile, the US Dollar has found support from strong labor and inflation data, which has tempered market expectations for aggressive easing by the Federal Reserve (Fed). According to the CME FedWatch Tool, there is currently a 92.1% probability of a 25-basis-point rate cut in November, with little to no expectation of a larger 50-basis-point reduction. This has kept the USD resilient, further limiting the upside potential for the NZD/USD pair.

Technical Outlook and Market Sentiment
From a technical standpoint, while the NZD/USD has seen a rebound, the Commitment of Traders (COT) report reveals that retail traders remain bearish on the pair, whereas smart money has started increasing their positions. In addition, our forecast suggests a potential shift toward a bullish seasonality for the NZD, though market conditions remain uncertain.

Given the importance of today’s US economic data, we are adopting a patient approach, waiting for the news release before considering any entries. Stronger-than-expected US figures could dampen the outlook for the NZD, while weaker data may present opportunities for the NZD to regain strength.

In conclusion, while there are signs of a potential bullish trend emerging for the NZD/USD, the combination of ongoing USD strength and upcoming key economic releases from both the US and China makes it necessary to remain cautious in the near term. Patience will be key as we await further developments in the market.


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