FX Daily Strategy: N America, August 16th

It will be a relative clear Friday as we have little critical economic release nor central bank speakers. The rebound in risk assets after the previous week's meltdown soon turns to consolidation and without more impetus, market participants are unlikely to further position themselves on Friday.

The RBNZ has changed course for Kiwi in their August meeting as they suggest the beginning of easing cycle. The Q2 PPI for New Zealand was released on Friday and was expected to remain soft, likely below 1%. However, the Q2 NZ PPI has beaten estimate in both input and output category. Both rose above 1% when they are expected to further moderate. Such may be a speed bump in RBNZ's plan of easing all the way till 2026 to 3%. Combined with RBNZ's Assistant Governor Silk comment of "RBNZ taking a measured approach" and "the behaviour of price inflation is crucial for the cash rate path ahead", suggest RBNZ will likely remain data dependent in their pace of easing.

On the chart, NZD/USD has turned sharply lower following rejection from the .6080/.6100 congestion and 61.8% Fibonacci retracement. Pullback see prices unwinding the overbought intraday and daily studies to reach the .6000/.5985 support area. Failure to hold this will open up deeper correction of the run-up from the .5850 low to the .5950 congestion. Higher low sought to further pressure the upside later with resistance now at .6050 level then the .6084 high. Clearance here and the .6100 congestion will turn focus to the .6135/.6150 area and potential for retest of the .6200 level. 

After massive correction, USD/JPY has been in consolidation phrase since early August. Deputy Governor Uchida's verbal support (BoJ to not hike in unstable market) does not seem like to be the stance of BoJ as no one echoes his rhetoric. It means the BoJ will likely to continue with its original plans if inflation dynamics goes along their forecast which we believe is an overshoot. Given the current development, it is likely USD/JPY would remain in consolidation unless we see another risk aversion wave.

On the chart, USD/JPY is little changed as prices extend choppy trade within the 148.00/146.00 range area. However, break above the 148.00 level not ruled out to extend correction from the 141.69 low to correct the steep drop from 161.95 high and see scope to the 148.50 resistance. Higher will see room to target 149.40, 38.2% Fibonacci level. Corrective gains are expected to give way to fresh selling pressure later. Meanwhile, support remains at the 146.50/146.00 congestion and break here will return focus to the downside and see room for pullback to the 144.00 congestion.