NZD: Asia Wrap - NZD/USD Trades Heavy Rallies Should Be Capped For Now

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• Bank Indonesia's (BI) decision is announced on June 18 and it is likely to keep rates at 5.5% after cutting them 25bp in May, although 9 out of 31 analysts on Bloomberg expect another 25bp reduction.
• With the focus remaining on the currency, we believe that BI will be cautious regarding back-to-back easing given that the Fed is widely expected to be on hold this month and it isn’t expected to resume cutting until later this year.
• With the economy slowing and inflation “controlled”, BI is likely to retain its easing bias, be cautious and look for opportunities to ease further going forward depending on global and Fed developments.

The BBDXY has had a range of 1201.63 - 1203.68 in the Asia-Pac session, it is currently trading around 1201.”FX traders will be impressed at the PBOC’s confidence in the yuan, despite all the uncertainty around the Middle East. Meanwhile, US importers are increasingly being asked by their foreign counterparties to settle transactions in currencies other than the US dollar, including renminbi.”(BBG)

• EUR/USD -  Asian range 1.1543 - 1.1567, Asia is currently trading 1.1565. EUR has rejected the move above 1.1600 but dips should continue to find demand, first support back towards the 1.1400 area then 1.1100/1200. EUR/USD looked to have broken the pivotal 1.1500 area last week, this needs to be sustained to signal a larger move higher.
• GBP/USD - Asian range 1.3558 - 1.3580, Asia is currently dealing around 1.3575. The GBP continues to hold above its Weekly pivot around 1.3500, it needs a catalyst for the move higher to regain momentum. First support seen back towards 1.3400/50.
• USD/CNH - Asian range 7.1787 - 7.1860, the USD/CNY fix printed 7.1746. Asia is currently dealing around 7.1820. Sellers should be around on bounces while price holds below the 7.2500 area and the PBOC manages the fix lower.
• Cross asset : SPX -0.40%, Gold $3390, US 10-Year 4.436%, BBDXY 1201, Crude oil $72.18

• Data/Events : Germany ZEW Survey

  Fig 1: USD/CNH Spot Daily Chart

  

  Source: MNI - Market News/Bloomberg Finance L.P

The NZD/USD had a range of 0.6045 - 0.6072 in the Asia-Pac session, going into the London open trading around 0.6070. A relatively quiet session for the NZD, as it continues to build for an extension higher.

• NZ Data -   Food & Power Inflation Higher As Petrol & Rents Ease. Monthly price data was mixed in May with food, power, accommodation and alcohol seeing a rise in inflation, while air travel, rents and petrol fell.
• GDP Preview - Q1 GDP Likely To Be Robust Due To Agriculture & Manufacturing. The focus of the week will be on Thursday’s Q1 GDP release. Bloomberg consensus is forecasting another 0.7% q/q increase in production-based GDP, driven by the primary and manufacturing sectors, leaving the annual rate still down 0.8% y/y but up from Q4’s -1.1% y/y. Thus, expenditure-based GDP should see a significant contribution from agricultural and also services (tourism) exports. This is stronger than the RBNZ’s May forecast of a 0.4% q/q rise.
• The USD’s inability to bounce given the geopolitical backdrop is a worrying sign, the NZD will continue to benefit from its malaise. 
• The NZD continues to find solid support around the 0.6000 area and has built a decent base from which to push higher from. 
• While the support around 0.5850 holds in NZD/USD there should be buyers around on dips. A clear sustained break above 0.6050/0.6100 and the move could start to accelerate forcing some shorts to further reduce positioning.
• CFTC Data showed Asset managers paring back their shorts slightly over the week, the leverage community did likewise.

• AUD/NZD range for the session has been 1.0757 - 1.0777, currently trading 1.0760. A top looks in place now just above 1.0900, the cross topped out last week towards the 1.0800/25 sell area, the first target looks to be around 1.0650.

  Fig 1: NZD/USD Spot Daily Chart

  

  Source: MNI - Market News/Bloomberg Finance L.P