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The  New Zealand dollar  surrendered to the strength of the US dollar and dropped sharply. It is now trading in a downtrend channel. Will this trend continue? Trade balance and business confidence are the main events.  Here is an analysis of fundamentals and an updated technical analysis for NZD/USD.

Producer prices rose stronger than expected in Q1, with PPI Input  rising 1%. Also  inflation expectations moved higher. Nevertheless, the kiwi surrendered to the  move higher of the US dollar. While the FOMC minutes did not consist of big surprises, it seems clear that the central bank already looks towards the days after QE.

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

NZD USD May 26 30 2014 technical analysis fundamental outlook and sentiment for New Zealand dollar trading

  1. Trade Balance: Sunday, 22:45.  New Zealand has enjoyed  trade surpluses in the past few months, with figures usually exceeding expectations. After +920 million in March, a smaller surplus of around 630 million is predicted.  
  2. ANZ Business Confidence: Wednesday, 1:00. This survey of around 1500 business reached a multi-decade high of 70.8 points in February, but has fallen since then. From 64.8 seen in April, a moderate drop is likely now in this influential figure.
  3. Building Consents: Thursday, 22:45. While month over month changes are huge, this  volatile indicator has a strong impact on the kiwi. After a leap of 8.3% in March, a small drop is  due for April.

* All times are GMT.

NZD/USD  Technical  Analysis

Kiwi/dollar  began the week with a drop under the round 0.86 line mentioned last week. This proved to be a decisive break as the pair could not recapture the line. It continued lower and eventually closed just under 0.8550.

Technical lines, from top to bottom:

The multi year high of 0.8842 is not that far away. Below this level, the recent 2014 high of 0.8780 serves as minor resistance at the moment.

The previous  2014 peak of 0.8745 joins the chart and will be watched on any upside move.  The round number of  0.87  proved its strength during May and joins the chart as key upside resistance.

The older swing high  of  0.8640  is close by and is still of significance as a pivotal line. It is followed by  the round number of  0.86, which  worked as a cushion during May 2014.

The low of  0.8550  is the next stepping stone on the way down and now serves as a pivotal line in the range. 0.85 is around number and could trigger comments by policymakers. A move above this line didn’t hold in early March 2014.

0.8435  was the peak in September and was retested in January. It was  a strong double top. 0.8392 served as resistance was a recurring peak between November and February.

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,  0.8280  supported the pair in February 2014 and also in the past.  0.82, worked as support several times: in September, October and also in December. It is somewhat weaker now.

I turn from bearish to neutral  on NZD/USD

The kiwi indeed dropped from the highs as expected, but this may pause or fully stop now. Even though the RBNZ wants a weaker kiwi, the underlying  situation of the economy remains strong. The upcoming data could balance any negative flows coming from global worries.

Further reading: