Halister News

(Bloomberg) -- After closing above 50-DMA for more than 50 days, NZD/USD may test 16-month high near term with several significant drivers in play ahead of the RBNZ rate decision Thursday, Bloomberg strategist Michael G. Wilson writes.

• Main catalysts are dairy auction, BOJ and Fed
• Tonight’s dairy auction looks strong, with whole milk powder futures climbing as much as $100 today to $3,000 per metric ton
  • NOTE: Kiwi bid as milk rises; NZD/USD is up 0.4% at 0.7319
  • Pair hit 0.7486 on Sept. 7, highest since May 2015

• Events this week appear kiwi bullish:
• Whole milk powder price may breach 11-mo. high of $2,824/mt at auction tonight; avg winning price at last auction on Sept. 6 was $2,793
  • Fonterra may increase milk price forecasts at annual results presentation Thursday morning
• In Japan, BOJ could enact further stimulus in view of possible patient Fed; this would be bullish for carry trade

• And there are USD bearish factors too:
• Fed may soften dot plots at FOMC meeting; market sees Yellen on hold

• RBNZ OCR decision comes after, on Sept. 22 at 9am local time
• In his statement following 25-bp rate cut on Aug. 11, RBNZ Governor Wheeler said kiwi needed to decline; since then it has risen 1.5% vs USD
• RBNZ is expected to keep benchmark rate at 2.0% on Thursday, according to all 16 economists in Bloomberg survey
• WIRP pricing for cut at only 13.1% vs 33.0% a month ago
  • Expectations for Nov. cut have also been dialed back; odds now seen at 49.8% vs 75.4% on Aug. 12, day after RBNZ last cut rates
• Attempts by RBNZ to import inflation via weaker currency could fail as NZD remains strong
• NOTE: Michael G. Wilson is a FX strategist who writes for Bloomberg. The observations he makes are his own.