Dollar Weakness Signals Strengthen Case for NZD/USD Uptrend
Bank of America strategists have observed a pickup in the decline of the US dollar. Technical and fundamental signals suggest further depreciation ahead, supported by quantitative models that reinforce the case for a sustained drop in the greenback.
The previous week saw options activity favoring dollar puts across various major currency pairs, with risk reversals shifting to favor dollar weakness both in advanced and emerging economies. Momentum indicators remain negative, with bearish dollar triggers appearing in six of the nine pairs tracked by Bank of America's technical framework.
Underlying economic conditions increasingly align with this trend, as fresh employment and price data have lowered the likelihood of a Federal Reserve rate hike in September. The Jackson Hole gathering will be key for gauging the Fed's next moves, but Bank of America suggests that a softer dollar is the most probable course.
The New Zealand dollar stands out against the US dollar, with options flow and skew pointing to kiwi calls last week. The upward movement is confirmed by a positive ADX trend gauge, making it a likely beneficiary of tighter yield spreads.