NZD/USD rallied to 0.8700, but has since pulled back to trade a touch below the 0.8700 barrier. I feel we are likely to see some consolidation around this level as we head towards the back-end of the week when activity ramps up. On Wednesday we have New Zealand’s current account data followed by the GDP reading on Thursday. The current account reading is expected to show a big improvement, turning from a deficit to a 1.42 billion surplus. Thursday’s GDP reading is expected to come in at +1.2%, which is also a solid improvement from the previous +0.9% growth. Should both readings come in as strong as the market expects, then this should underpin further NZD gains.
At the same time traders will have to contend with the results from this week’s Fed meeting which looks like it could bring some excitement. Recent strength in the US dollar suggests the market is positioned for some slightly hawkish bias. If this doesn’t materialise then we could easily see the US dollar start to unwind and have a net-positive effect on the pair.
As a point of reference, 0.8780 will be a key near-term level to keep an eye on. This is where May highs were, and is also the highest since August 2011. I’ll be watching this level closely in the near term along with support at 0.8600, which is the 23.6% retracement of the February to May rally. This will be a key range this week.