The New Zealand dollar reached for the lows but showed a lot of resilience despite falling milk prices. The rate decision is undoubtedly the big event of the week, but not the only one. Here is an analysis of fundamentals and an updated technical analysis for NZD/USD.
After 4 consecutive rises in dairy prices, the recent auction saw prices turning south: a drop of 3.1% weighed on the kiwi. Other figures, visitor arrivals and credit card spending actually looked good. In the US, data was OK, but NZD managed to recover thanks to other events: a dovish Draghi and a Chinese rate cut. Support from central banks supports risk currencies such as the kiwi.
[do action=”autoupdate” tag=”NZDUSDUpdate”/]NZD/USD daily graph with support and resistance lines on it. Click to enlarge:
- Trade Balance: Monday, 21:45. New Zealand experienced three straight months of deficits in its trade balance. While the figure is expected to remain negative, a narrower trade deficit is on the cards: from 1.035 billion to 822 million this time.
- Rate decision: Wednesday, 20:00. The Reserve Bank of New Zealand already cut rates 3 times this year, slashing rates all the way from 3.5% to 2.75%. Will they cut once again? The jury seems to be out on this one. On one hand, the economy is doing well, with the government posting a surplus, housing prices rising and some stability from milk prices. On the other hand, the RBNZ would certainly prefer a lower exchange rate to keep the economy running and as inflation is falling. Given the uncertainty, any decision will move markets. Our bet is on a slash to 2.50%.
- Building Consents: Thursday, 21:45. This extremely volatile indicator is a bit of a wildcard but still reflects the housing sector in New Zealand. After a drop of 4.9% in August, we may see a rise this time.
- ANZ Business Confidence: Friday, 00:00. In the past 4 months business confidence has been negative, sending a message of pessimism, but this has narrowed back in September to -18.9 points. A similar score is on the cards now.
NZD/USD Technical Analysis
Kiwi/dollar began the week sideways and eventually fell to the round level of 0.67 (mentioned last week). From there the pair managed to recover but hit resistance at 0.6860 and fell back down to lower ground.
Live chart of NZD/USD:
[do action=”tradingviews” pair=”NZDUSD” interval=”60″/]Technical lines, from top to bottom:
We start from higher ground this time. 0.7075 is where the pair found support back May. It is naturally followed by the very round level of 0.70.
The low of 0.6940 allowed for a temporary bounce. The round 0.69 level is switched positions to resistance.
0.6860 was a low point as the pair dropped in June 2015. It is followed by the 0.68 level that worked as resistance when the pair was climbing a few years back.
Close by, the July high of 0.6770 serves as resistance. Quite close by, the high of 0.6740 seen in July is another cap.
It is followed by the round level of 0.67 that is a pivotal line in the range. The now previous July low of 0.6650 was a multi-year low and the break below it was not confirmed.
0.6620 is the new 2015 low and for now serves as minor support. The post crisis low of 0.6560 is still of high importance.
Below, the round 0.65 level is of high importance now. The last line is 0.6488, which was the low both in July and in August – a double bottom.
Minor resistance can be found at the October swing high of 0.6440. 6408 works as a pivotal line. Below, 0.6310 provides some support after doing so in early September.
I turn from neutral to bearish on NZD/USD
The help that the kiwi received from central banks in Europe and China is a double edged sword: it also reflects a worsening global outlook and this could push the NZD down. Even if the RBNZ does not cut rates now but defers it to the next meeting, the outlook for the currency remains negative, despite the economy looking quite good in New Zealand.
In our latest podcast we do a Draghi drill down, cover CAD and explain silver investment.
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Further reading:
- For a broad view of all the week’s major events worldwide, read the USD outlook.
- For EUR/USD, check out the Euro to Dollar forecast.
- For the Japanese yen, read the USD/JPY forecast.
- For GBP/USD (cable), look into the British Pound forecast.
- For the Australian dollar (Aussie), check out the AUD to USD forecast.
- For USD/CAD (loonie), check out the Canadian dollar forecast.
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