fxmatters

The US dollar rebound finally came last week i.e. the USD dropped after having appreciated very strongly since mid July. Significantly the EUR/USD gained 5.1%, breaking above the range of the previous six weeks. The momentum was not enough for the NZD/USD to emerge from its recent range but such a break is likely.

The key factor will be the EUR/USD. The move last week was largely the result of a widening interest rate differential as even lower interest rates are anticipated in the US – including a 0.25% or 0.5% cut Wednesday morning – coming at a time that questions are being raised as to whether the ECB will be as aggressive, and against a backdrop of continued disturbing news from the US. It does appear that the USD tide has turned for now and an NZD/USD nearer 60c is likely in the next few weeks.

More generally currency markets are likely to trade within broad sideways patterns in the next 2-3 months. There will undoubtedly be more bad news from Europe to come, and hence EUR weakness at the time. The Japanese authorities will eventually resist a weaker USD/JPY. The choppiness produced by these three major currencies will set the tone for exchange rates such as the NZD/USD, NZD/EUR and NZD/JPY. Such an outlook suggests placing orders to sell NZD/USD above 57c and buying below 53c for medium-term requirements.