Bank of America Sees Dollar Weakness Continuing with NZD Gains
Bank of America's analysis suggests that the US dollar's decline is gaining momentum. According to their quantitative signals, multiple technical and fundamental indicators point to further weakness in the dollar. Option flows favored dollar puts across several major currency pairs last week, while skew moved in favor of dollar downside across both developed and emerging markets.
The bank noted that recent labor and inflation data have reduced the risk of a Federal Reserve interest rate increase in September. This, combined with the Jackson Hole symposium's importance for understanding the Fed's future strategy, appears to be supporting a weaker dollar path.
Bank of America favors a stronger New Zealand dollar against the US dollar, citing its attractiveness due to tighter rate differentials. The bank also noted that the NZD/USD pair broke above the trailing 10-day highs at 0.5908 starting the week of August 17, with option flow and skew supporting New Zealand dollar calls last week.