NZD/USD Outlook – May 2-6

Labor Cost Index, Building Consents, and Employment data are the market movers this week. Here is an outlook on the coming events and an updated technical analysis for NZD/USD

Last week New Zealand’s central bank maintained its benchmark rates announcing they will continue doing so to help recovery following the devastating Christchurch earthquake until next year. The economy is suffering from growing oil prices and high currency freezing market activity.

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

1. ANZ Commodity Prices: Monday, 4:00. Commodity Prices of New Zealand increased for a second month surging by 4.7% from 2.7% in the previous month. This situation causes households to concentrate in repaying debt instead of spending which is bad for the economy.
2. Labor Cost Index: Monday, 23:45. The labor cost index measuring changes in base salary gained 0.6% on the 4th quarter of 2010 increasing 1.7% in the year to the December 2010. This figure indicates growing inflation.The same gain is expected now.
3. Building Consents: Tuesday, 23:45. Residential buildings further decreased in December following a plunge of 9.7% in building consents. The housing market is weak and does not show signs of improvement. Employment change is predicted to increase 0.6%.
4. Alan Bollard speaks: Thursday; 4:15, 8:45. Governor of the Reserve Bank of New Zealand will make two appearances. His words may give ckues to future monetary policy.

* All times are GMT.

NZD/USD Technical  Analysis

After the big breakout last week, the kiwi found support at the previous peak of  0.7975 (mentioned last week). On the upside, it was capped by 0.81, in range trading, eventually closing higher.

Looking down, 0.7975, is proved to be a strong line also as support, and will cushion any fall of the pair. A hundred pips below, we encounter 78.75, which was an area of struggle before the breakout.

Moving lower, 78.25 is an important line of support after having a very strong role just now. It’s followed by  0.7750. This was a peak resistance earlier in the year, remains a minor support line on the way down.

Even lower, the next line is 0.7655, which is a stronger line, after capping the pair in October and also a few months ago. The last line for now  is only at 0.7523, which is now only a minor line, after being shattered a few weeks ago.

Looking up, there aren’t two many lines. The swing high of 81 worked as a perfect line of resistance just now, and will be tested at the beginning of the week.

Higher, 82.15 is the all time high seen over 3 years ago. Unchartered territory lies above this line, with potential slowdowns at 83 and 85.

I remain bullish on NZD/USD.

The advance of the kiwi is steady – the pair isn’t overbought. The US dollar is likely to further weaken after Ben Bernanke announced QE2 Lite.

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/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 the New Zealand dollar (kiwi), read the  NZD forecast.
• For USD/CAD (loonie), check out the  Canadian dollar.