NZD/USD: how low can you go? August 2015 lows at 0.6235 eyed

• NZD/USD is currently trading at 0.6550. It had dropped to 0.6540 from 0.66 the figure on dollar strength and outperformed the Aussie in NY after supply came in at 1.0975 in AUD/NZD to 1.0898 whereby AUD/USD dropped 79 pips in late Aisa and early European trade. 
• The Greenback boosted on data and has taken up its safe haven function again.

NZD/USD was trading close to 30-month lows after a disappointing GDT auction overnight. New Zealand's bi-weekly GDT auction and GDT price index declined 0.7% following the 3.6% fall witnessed in the previous auction and put some additional selling pressure on the kiwi. There is still no consolidation here for Kiwi bulls and risks are rapidly mounting up against the currency. 

Taking into consideration the divergence between the RBNZ and Federal Reserve, there is little reason to won the Kiwi on the interest rate advantage the dollar holds alone. 

In its August statement, the RBNZ indicated that the current cash rate of 1.75% is likely to be maintained through 2019 and 2020. However, the recent data flow has been weak and the market has moved to price in around 50% chance of an OCR cut by mid next year. Casting minds back, governor Orr, at the Jackson Hole, reiterated that the central bank intends to hold policy rates low for an extended period of time which is likely to keep a lid on short-term New Zealand rates and the Kiwi dollar.  

Since then, we have seen that the that the August business confidence, a number that the RBNZ monitors, citing that weak investment intentions as a reason for a more subdued outlook for the New Zealand economy, Indeed, deteriorated sharply in August, (business outlook survey from ANZ showed last Thursday). The business confidence balance declined to -50.3 from -44.9 in July as firms expect general business conditions to weaken in the year ahead. 

"The RBNZ acknowledge the possibility of some tightening in the scenarios they present, which alongside a more upbeat inflation scenario, with higher rates sooner, also considers the impact of growth failing to pick up after the recent slowdown, concluding that this would need the official cash rate to be reduced by around 100bp. With the escalation of the trade war, questions over the resilience of their larger neighbour, and some signs of weakness in Asia, we think the market has priced the balance of risks to the current cash rate about right - ING Bank

The greenback boosted on data and has taken up its safe haven function again

The U.S. and Chinese trade relations continue to keep investors on edge and on Thursday, the U.S. is expected to impose new tariffs on $200 billion worth of Chinese goods. Also, US data is greatly exceeding in its economic performance and the latest data from the U.S. on Tuesday that the Markit Manufacturing PMI and the ISM Manufacturing PMI came in at 54.7 and 72.1 respectively beating estimates by quite some margin - (DXY rallied to 95.70 key H&S shoulder resistance).

"The NZD briefly dipped to 0.6540 overnight, the lowest since early 2016, as the USD strengthened. Today, local data is unlikely to drive NZD with the market looking ahead to trade developments with China and NAFTA. It’s difficult to see NZD performing well with this uncertainty clouding the outlook. We continue to sell rallies," analysts at ANZ explained.

NZD/USD levels

NZD/USD has been driven lower within the steepening bear trend to just below that support of 0.6550, making a fresh daily low for August of 0.6540. The August 2015 lows at 0.6235 are now in focus as a key objective. There is plenty of downside to go within the Bollinger bands and RSI. On the flip side, above the 21-D SMA, the weekly 10 SMA is still the first key target to the upside - located at 0.6709 and if broken, it will be the first time the price has traded above it since mid-April earlier this year. While otherwise, the bull's target in the medium term should be the 200-month moving average resistance at 0.7019.