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The  New Zealand dollar  suffered badly, but for the wrong reasons. Will it bounce from the 0.80 handle? Employment figures will be closely watched. Here is an analysis of fundamentals and an updated technical analysis for NZD/USD.

The RBNZ made it quite clear that rates would be “normalized”, hinting about a rate hike in March. Nevertheless, QE tapering 2 as well as the emerging markets’ crisis hurt the commodity currency that was resilient so far.

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NZD/USD  daily chart with support and resistance lines on it. Click to enlarge:

NZD to USD Technical Analysis February 3 7 2014 fundamental outlook and sentiment

  1. ANZ Commodity Prices: Tuesday, 00:00. As an exporter of food, prices of commodities are certainly meaningful to the economy. After a rise of 1% in December, a small drop could be seen for January.
  2. Employment data: Tuesday, 21:45. New Zealand is unique in publishing employment data only once per quarter. The figures are important everywhere, and even more important when published infrequently. After a rise of 1.2% in jobs in Q3, a more moderate rise of 0.7% is expected for Q4. The unemployment rate already fell nicely to 6.2%, and is now predicted to drop to 6% in the last quarter of the year. It’s also important to note the Labor Cost Index, which is another measure of inflation. A rise of 0.5% is expected.

NZD/USD  Technical  Analysis

Kiwi/dollar began the week by dropping to support at the 0.82 line (mentioned last week). A move higher didn’t last, and the pair began a free fall. It finally found support at 0.8062.

Technical lines, from top to bottom:

We start from lower ground this time. The round number of 0.84 is another line of resistance after capping the pair in September and in November.  0.8335  capped a move higher in December and also had a role in the past. The pair fell short of this line in January 2014.

Below,  0.8290  capped the pair several times during December and now works as a key line to the upside.  0.82, worked as support several times: in September, October and also in December. It is somewhat weaker now.

Close by, 0.8150 capped the pair in August and worked as support in March. Lower, 0.8135 provided support for the pair in January 2014.

0.8060 provided support to the pair in January 2014 and is the level to watch on the downside. The round number of 0.80 doesn’t have a technical significance, but is certainly psychologically important.

Below 0.80, we find another round number: 0.79. This level was a pivotal line several times in the past. The last line for now is 0.7850, that worked as cushion back in September, before the big rally.

Trendline broken

As the chart shows, the pair is no longer riding the uptrend, but rather fell below this line. This could be a bearish sign.

I am neutral on NZD/USD

After the central bank hinted about an imminent rate hike in March, and also government officials began preparing themselves for this, the sell off of the kiwi seems totally unjustified. Strong employment numbers could provide the reason for a recovery.However, also in the US, QE tapering could be followed by a strong Non-Farm Payrolls report, so we could see a recovery of NZD/USD followed by a new slide.

Further reading: