Chart of the Day NZDUSD

NZDUSD Potential Reversal Zone - Probable Price Path

NZD: There was a modest reversal higher in NZ rates yesterday, a day after the 2-year swap rate and the 2023 maturity government bond yield briefly crossed into negative territory. The sell-off in global bonds on Thursday night and some profit-taking in NZ rates pushed the 2-year swap rate 3bps higher, to 0.03%, and the 10-year rate 6bps higher, to 0.57%. There was also steepening of the government bond curve. Yesterday’s bond tender saw strong demand for the 2024 maturity but weaker demand for the 2037 bond. In domestic data, yesterday’s electronic card spending data showed total spending declined 7% in August, partly due to the reimposed lockdown in Auckland. Even with the fall in August, there should still be a sizable bounce in retail trade volumes in Q3. Earlier today, the RBNZ purchased NZD440 million of LGFA bonds, to meet its target. The RBNZ will keep purchases unchanged next week. Mixed second tier data out of New Zealand earlier today has not factored into price action. Instead, Kiwi is fixated on the bigger picture macro flow.

USD: US equities fell sharply in volatile trading on Thursday as tech shares resumed their sell-off. It was the fourth decline in five sessions for the major averages. US Treasury yields rose slightly on Thursday as market participants digested the latest US jobless claims data that came in worse-than-expected. The yield curve flattened after the government sold $23bn in 30-year bonds to solid demand, the final sale of $108bn in new coupon-bearing supply this week. The yield curve between 2-year and 10-year notes flattened one basis point to 54bps and the curve between 5-year notes and 30-year bonds flattened one basis point to 117bps. The US dollar was steady, with the US Dollar Index (DXY) hovering at around 93.172. Today’s focus in the US will be on August CPI data (Bloomberg Est +0.3% m/m, +1.2% y/y from +0.6% m/m, 1.6% y/y in July) and core CPI (Bloomberg Est +0.2% m/m, +1.2% y/y from +0.6% m/m, +1.0% y/y in July). The other notable US data will be August real average weekly earnings and the monthly budget statement for August.

From a technical and trading perspective, the NZDUSD appears to be trading in a potentially bullish consolidation pattern holding ascending trendline support at .6650, bullish exposure should be rewarded on a closing breach of the interim descending trendline resistance sighted at .6700. Bulls should look for an extension higher to test offers and stops above .6900. On the day a close sub .6600 handle would negate the bullish thesi suggesting a more protracted corrective phase is underway testing bids back towards .6400

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