Forex Market: NZD/USD in consolidation mode ahead of US durable goods orders data, Fed Chair Powell’s Jackson Hole speech

NZD/USD remained in consolidation mode during early European session on Wednesday, after the kiwi benefited from US-China trade deal commitment while the US Dollar took a hit on the back of weaker-than-expected consumer confidence data in the prior trading day. Markets were now expecting the latest report on US durable goods orders later on Wednesday and a key speech by Federal Reserve Chair Jerome Powell on Thursday.

A report by the Conference Board research group showed on Tuesday that US consumer confidence had decreased to its lowest level since May 2014 in August as Americans were concerned about job losses resulting from the coronavirus crisis, with data mounting additional pressure on the US Dollar.

US durable goods orders, another key data print, are expected to increase at a slower rate in July compared to June, which would add to concerns over economic recovery.

Market players’ focus now sets on Fed Chair Jerome Powell’s speech at the Jackson Hole virtual symposium, scheduled on August 27th-28th, for further clues over US monetary policy outlook.

“I expect Powell to use forward guidance to send a dovish message that rates will remain low for a long time, which feeds into dollar weakness,” Minori Uchida, head of global market research at MUFG Bank, said.

“You could say we are in a long-term correction of excessive dollar strength.”

Meanwhile, trade-sensitive currencies such as the kiwi dollar received a boost after the United States and China demonstrated willingness to preserve their economic relationship, as top trade negotiators from both countries reaffirmed their commitment to a “Phase One” deal, achieved in January.

In other macroeconomic news, a report by Statistics New Zealand showed earlier on Wednesday that the nation’s trade balance had recorded a surplus of NZD 282 million in July, which compares with a deficit of NZD 732 million during the same month of 2019. Total imports shrank 18% year-on-year to NZD 4.6 billion in July, while total exports decreased 0.2% year-on-year to NZD 4.9 billion.

As of 7:16 GMT on Wednesday NZD/USD was inching up 0.02% to trade at 0.6549, while moving within a daily range of 0.6541-0.6562. The major pair has retreated 1.14% so far in August, after four straight months of gains.

In terms of economic calendar, today’s focus will be on the US durable goods orders report at 12:30 GMT. New orders for manufactured durable goods probably rose 4.3% in July from a month ago, according to market expectations, following a 7.3% increase in June.

The value of durable goods orders, excluding transportation items, probably rose at a monthly rate of 2.0% in July, according to expectations, following another 3.3% surge in June.

Bond Yield Spread

The spread between 1-year New Zealand and 1-year US bond yields, which reflects the flow of funds in a short term, equaled 6.7 basis points (0.067%) as of 6:15 GMT on Wednesday, down from 9.7 basis points on August 25th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.6540
R1 – 0.6566
R2 – 0.6584
R3 – 0.6609
R4 – 0.6634

S1 – 0.6522
S2 – 0.6497
S3 – 0.6479
S4 – 0.6461

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