I am about to close this position if 0.7240 is breached. Besides that...I shall get some rest.
The New Zealand currency is in mildly strong position fundamentally as its economy tempers itself to modest levels this year to 3 from 3.4% in 2015, and 2.7% in 2017. Tourism grew, as well. Lower dairy prices have negatively impacted exports. The central bank is dovish as it continues to lower its rates. More rate cuts are ahead, according to the signs that the central bank has given the world. It has cut rates 5 times already in one year to a record low of 2.25%. Their goal is to attempt to push inflation back to 2% from its current level of 0.4%. A weaker exchange rate can help them achieve their goal. This level of inflation they project to hit by 2018.
The biggest risks to this currency that may or may have already started to happen are the following:
1. Inflation: Inflation will rise but stay below target.
2. Housing: If there is a sudden drop in construction in Canterbury and Auckland, then housing investment and consumption would suffer (Canterbury was affected by an earthquake and Auckland has a housing shortage). So, the risk is a slowdown in activity due to the a slowdown in construction from an end in monetary stimulus from earthquake-related rebuild projects, but the influx of immigration so far has actually boasted construction in Auckland, lessening the effect of the government of NZ ending the earth-quake related reconstruction.
Recent news today (July 7, 2016) have pushed this currency higher: http://www.bloomberg.com/news/articles/2016-07-07/rbnz-may-extend-property-investor-lending-limits-beyond-auckland
4: Weaker global prospects for New Zealand..
5: Currency: A strengthened currency is detrimental to this economy
6. External risks: The China Factor: China has a high demand for dairy products from New Zealand and imports many goods from NZ top trading partners. Any change to this will have an impact on the currency. Eurozone: Any change to the European Union’s bureaucratic policies on dairy products will have a big impact on the farms in New Zealand (their incomes and their consumption, which, in turn, will affect the rest of the economy).
At the end of the day, I am still a bearish neutral the New Zealand dollar as rate cuts are on the table later on.
Imre Spitzer, an analyst at Westpac, said that the New Zealand dollar regains pressure to the downside and test 0.6700 area:
'In a referendum in the UK on EU membership pair NZD / USD is in the range 0,7000-0,7300, and it seems a hostage to mood changes in the world markets during the day.
The flow of macroeconomic data remains supportive, in addition to inflation figures, which remain very weak. Nevertheless, recently, plus global risks and trade-weighted foreign exchange rate of the New Zealand dollar is significantly higher than the forecast, should push the RBNZ to lower interest rates in August. We, therefore, neutral for NZD / USD in the coming week.
In addition, the global uncertainty, with the RBNZ to mitigate the monetary policy should act as barriers to flows of funds seeking high returns, and we see the NZD / USD at the end closer to 0.6700. "