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REINZ house price index is the major event this week. Here is an outlook on the major events at hand, with an updated technical analysis for NZD/USD.

Interest rate could start going up again as early as the end of the year claims Reserve Bank governor Alan Bollard with the rebuilding of Christchurch under way. The official cash rate cut to 2.75% undermined economic recovery with a weak domestic economy. However no further reductions to the OCR should be expected. The Rate cut decision may need to be reversed quickly and rate hikes may be needed as early as the end of this year. Meanwhile, the fall in the New Zealand dollar on the back of lower interest rates will help Canterbury’s manufacturers and exporters

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

NZD USD Chart March 14 18

  1. REINZ HPI: Mon-Fri. The REINZ house price index slumped to a record low of  2.6% decrease in January from 0.6% drop in the previous month anticipating a slow economic recovery this year. The number of properties sold fell 3,252 from 4,397 in December indicating that home prices may be slow to recover. A similar figure is expected now.
  2. Westpac Consumer Sentiment: Wednesday. New Zealand consumer confidence fell to the lowest in six following the plunge in the housing market. Consumer Sentiment index fell to 108.3 from 114.1 in the third quarter. The index is the lowest since the second quarter last year supporting the forecasts of a slow recovery.

*   All times are GMT.

NZD/USD Technical  Analysis

After tight trading around the 0.7350 and 0.74 lines  (discussed last week), NZD/USD fell and dipped under 0.7350, but eventually made a comeback and closed at 0.7424.

Looking up, the first significant line of resistance is found at 0.7523, which capped a recovery in recent weeks. It also was a peak a long time ago and later served as support.  It’s followed by 0.7655, which was a stubborn line of resistance and the highest level in the past months. Also in October, this line had a role.

Above, 0.7750 is a tough bar which served in February as resistance and as support in November. It’s followed by 0.7830, which was a peak in November and is stronger resistance.

Higher, the peak of 0.7975 was the 2010 high and serves as strong resistance, just under the round number of 0.80.

Looking down, immediate yet weak support is found at 0.74. This round number was a better cushion in the past, but has been broken now. It’s followed by  0.7350 – had an important role now.This line was a low level in December.

Further below, a break will send the pair to levels last seen 6 months ago. It’s closely followed by 0.73, which was a stepping stone on the way up.  Even lower, 0.7210 also worked as a stepping stone for the kiwi on the way up and now provides support.

Below, 0.7140 was a resistance line back in July and also in August, and now works as minor support.  Below the round number of 0.70, we find important support at 0.6950 – which was the lowest line in 6 months.

I remain bearish on NZD/USD.

The earthquake in  Christchurch still weighs on the economy. The serious rate cut means that New Zealand dollar will be less attractive for carry traders.

Further reading: