If at the turn of July and August, investor attention was focused on the US dollar and the euro, then the RBA and RBNZ meetings, as well as the release of data on the labor markets of Canada and New Zealand, make markets look at commodity currencies with a bias. The kiwi is of particular interest. According to the indications of interest rate swaps, the Reserve Bank of New Zealand will reduce the cash rate by 25 bp at the August meeting. Another cut will occur a little later in 2019, the next - in April 2020. The bond market, evaluating the prospects of an unconventional monetary policy, believes that the main interest rate may fall to -0.35%. The significant potential of monetary expansion exerts serious pressure on the positions of the bulls in NZD/USD.
Dynamics of expected RBNZ interest rates
According to Bloomberg Economics, New Zealand is the most dangerous developed country in the world in terms of potential correction of property prices. The destabilization of the financial system, the trade wars and the associated slowdown in economic growth - the main trading partner of Wellington in the face of Beijing, the slowdown in inflation and GDP, and the RBNZ's monetary expansion cycle make fans of the New Zealand dollar very vulnerable. The situation is exacerbated by falling milk prices by 11.7% from May to July, which is a key component of New Zealand exports.
The kiwi is not able to take advantage of the support of carry trade, since the rates of the island state's debt market are lower than the US, which forces players by the difference to seek bliss in developing countries. Deprived of the support of its old trump cards, the kiwi drifts lower, and the release of data on the New Zealand's labor market and the RBNZ meeting run the risk of rocking the boat in one direction or another. According to forecasts of Bloomberg analysts, the RBNZ will lower the cash rate from 1.5% to 1.25%, while employment will increase from -0.2% to +0.3% from the previous quarter.
The situation in Australia does not look any better: the RBA does not intend to touch the cash rate in August, but the Australian central bank has already reduced it twice in 2019. If you add Philip Lowe's dovish rhetoric, it becomes clear that the slowest in the last 27 years, the growth of Chinese GDP has not bypassed either Wellington or Canberra. In this regard, a drop in the NZD/USD and AUD/USD quotes in response to Donald Trump's introduction of additional duties worth $300 billion to China seems quite appropriate.
RBA interest rate forecast
Unlike its New Zealand and Australian namesakes, the Canadian dollar continues to attract interest. It competes with the Japanese yen for the title of best performer of G10 and has strengthened since the beginning of the year by more than 3%. Further dynamics of the USD/CAD pair will depend on the release of its labor market data.
Technically, a "Shark" pattern is forming on the daily NZD/USD chart. A rebound from resistance levels by 23.6%, 38.2% and 50% of the CD wave will lead to the transformation of the model into 5-0. On the contrary, the inability of bulls to hold quotes above 0.65 will be the first sign of their weakness and will create the prerequisites for continuing the downward trend to 113% of the CD wave.