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The  New Zealand dollar  enjoyed some early gains but found it hard to hold on to them. The key event in the upcoming week is the rate decision. Will the RBNZ raise its tone regarding a rate hike? Here is an analysis of fundamentals and an updated technical analysis for NZD/USD.

Inflation in New Zealand exceeded expectations in the fourth quarter, with a rise of 0.1%. As this is usually a low inflation season, the figures raise expectations for a rate hike in New Zealand, sooner than later. We will know soon. The  Business NZ Manufacturing Index continued showing strength in the economy by scoring 56.4 points, reflecting solid growth.

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

NZD USD Technical Analysis January 27 31 2014 forex trading New Zealand dollar

  1. Rate decision: Wednesday, 20:00. The Reserve Bank of New Zealand releases its rate decision just one hour after the FOMC statement and is also expected to be relatively hawkish. The stronger than expected inflation number and the active housing market support a hike, while the relatively high exchange rate is likely to limit the scope of the statement. No move is expected now, but the Bank could act in the next meeting.
  2. Building Consents:  Wednesday, 21:45. After a few months of limited moves, the number of approvals jumped by 11.1% in November. A small drop is likely now for the month of December. The housing sector is currently one of the strongest sectors.
  3. Visitor Arrivals: Wednesday, 21:45. Also tourism is an important sector in New Zealand. The number of visitors coming to see the land where Lord of the Rings was filed rose by 2.8% in November, and probably continued rising in December.
  4. Trade Balance: Thursday, 21:45. New Zealand’s balance of goods turned positive in November with a surplus of 183 million, for the first time in 6 months. An even wider surplus is expected now. This supports the kiwi.
  5. Graeme Wheeler: Thursday, 23:00. Just one day after the rate decision, RBNZ governor Graeme Wheeler will make a public appearance in Christchurch. He will have the opportunity to correct any misconception triggered by the rate statement, should it come. He usually moves the markets.

NZD/USD  Technical  Analysis

Kiwi/dollar kicked off the week with a move upwards, but the 0.8335 line, discussed last week, continued to limit the pair’s rise.

Technical lines, from top to bottom:

0.8544 was the peak the pair rose to back in October and it serves as a strong line in the distance. 0.8435 was the peak in September – a peak that triggered a big downfall. After it was broken again, the line switched to support. It is a clear separator.

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.  The round number of 0.81 worked as resistance in July.

Lower, 0.8135 provided support for the pair in January 2014.  Below 0.80, we find another round number: 0.79. This level was a pivotal line several times in the past.

Trading above the uptrend

As the chart shows, the pair is riding on an uptrend support line since the beginning of the year. The kiwi escaped from the line after sliding towards it.

I remain bullish on NZD/USD

The economic data coming out of New Zealand continues to be positive. Also inflation is picking its head, and joins the rises in house prices seen and talked about, especially in Auckland. On this background, the kiwi has room to rise against its commodity currency peers, the Aussie and the CAD. And also against the US dollar, the NZD still has room to rise, despite the high probability for more QE tapering from the Fed.

Further reading: