NZD/USD Continues Fall, Amid Growing Chance Of RBNZ Cut, Carry Trade Unwind

The NZD has continued it fall and has slipped almost 5% from recent cycle highs. The moves come on the back of speculation that the RBNZ will cut rates in the coming months amid easing inflation. Additionally, China's poor economic outlook has negatively impacted the Kiwi.

• The NZD/USD saw volatility pick up on Wednesday dropping 50-pips in during the Asian session, before a sharp rally as the European progressed, the pair ultimately closing the session down 0.45% as haven currencies benefitted after equities had their worst day since December 2022.
• The unwinding of the carry trade is also hurting the kiwi as the yen strengthens driven by expectations of a potential BoJ rate rise and anticipated currency interventions, while the prospect of Fed rate cutting is increasing Yen demand.
• The pair continues to trades well under all key EMAs with a bearish trend still intact. Technical indicators show continued selling pressure, with the RSI is now in oversold territory at 28, levels we have not seen since August 2023. A break above 0.5980 is needed to slow the downward trend, while a break below 0.5900 would likely trigger stops and see further downward pressure on the currency.
• The OIS market pricing is firmer today, now pricing in a 64% chance of a cut in August, from about 50% on Tuesday, with a cumulative 78bps of cuts into year end.
• The NZ-US 2yr swap spread made new lows again on Wednesday, hitting -13bps we trade just off those levels now at -11bps.
• The calendar is light on for the remainder of the week.