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NZD/$ continued its free fall for a third week in a row. The European troubles find the kiwi very vulnerable. Where will this stop? Inflation Expectations and Annual Budget Release are the highlights of this week. Here’s an  outlook  for the events in New  Zealand, and an updated technical analysis for NZD/USD.

Last week , New Zealand’s retail sales declined in the first quarter amid slower spending after a boost during the Rugby World Cup. Retail sales dropped 1.5% while Core sales decreased 2.5%. However the big plunge occurred in the sectors which gained the most during the Rugby Cup dropping after the tournament ended. The overall sales level is still above pre-cup levels indicating moderate growth in NZ market.

Updates: Visitor Arrivals fell sharply, posting an increase of only 0.8%. Credit Card Spending fared no better, slumping to 3.7%. The kiwi is in free fall, having  shedded six cents in the month of May. NZD/USD was trading at 0.7578. Inflation Expectations, a key indicator released each quarter, was almost unchanged at 2.4%. The previous reading for Q4 came in at 2.5%. The kiwi rebounded somewhat, as  NZD/USD was back above the 0.76 line, trading at 0.7606.  NZD/USD dropped sharply, as investors react to the ongoing crisis in the Euro-zone. NZD/USD fell below the 0.75 line, and was trading at 0.7499. Trade Balance will be released on Wednesday, and the market forecast stands at 445M, which is much higher than the April reading of 134M. Trade Balance was up sharply in May, but still fell well below the market forecast. The indicator posted a reading of 355M. The Annual Budget was released, and as a key indicator, can affect the direction of NZD/USD. The kiwi was up slightly, as the pair was trading at 0.7538.

NZD/USD  daily chart with support and resistance lines on it. Click to enlarge:NZD/USD Chart May 21 25 2012

  1. Visitor Arrivals: Sunday, 22:45. Visitors to New Zealand increased 2.3% on a monthly basis following 4.8% decline in February.   On a yearly base NZ number of visitors jumped 11% in March compared with March 2011.
  2. Credit Card Spending: Monday, 3:00. Credit card spending in New Zealand climbed 5.2% in March compared to the same month a year ago, this rise was preceded by a 4% gain in February. Overall spending expanded to NZ$2.767 billion (€1.71 billion)  in March 0.3% higher than in February.
  3. Inflation Expectations: Tuesday, 3:00. Annual CPI expectations dropped in the first quarter to 2.5% from 2.8% in the fourth quarter of 2011, according to a Survey of about 100 responders. Inflation expectations among companies moderated in the March quarter
  4. Trade Balance: Wednesday, 22:45. An unexpected decline to $134 million occurred in NZ trade surplus  during March amid a drop in the value of dairy products, crude oil and fruit. This drop followed a $220 million in February. Economists anticipated a monthly surplus of $437 million.
  5. Annual Budget Release: Thursday, 2:00. The New Zealand will deliver its annual budget on May 24, with a continuation of the “tight financial constraints” that characterized last year’s budget. The Budget is aimed to form a more productive and competitive economy. The governments goals are to closely monitor its finances improve public services within tight financial constraints; and rebuilding the country’s earthquake-battered second city of Christchurch.

* All times are GMT.

NZD/USD  Technical  Analysis

The kiwi kicked off the week falling below 78.10 (mentioned last week). It then found a bottom at 0.7620, but continued deteriorating and hardly found support at 0.7550 towards the end of the week.

Technical lines, from top to bottom:

We start from lower ground this week. 0.8190 is the next line, after switching roles easily from support to resistance. It capped the pair in March 2012 and also provided some support in January. The round number of 0.81 now switches to resistance after proving itself as a cushion at the end of April 2012.

0.8060 was resistance in October and support beforehand.. It was also tested in January and in March, is much weaker now after only temporarily stopping the fall. The round number of 0.80 managed to cap the pair in November and remains of high importance, especially due to its psychological importance.

Another round number, 0.79, is key resistance, after being a very distinct line separating ranges. 0.7810 was a double bottom in May 2012 and also served as resistance at the end of 2011, and now returns to this role after the crash.

0.7773 was the bottom border of a range at the beginning of 2012, and also in December.  0.77 provided support in December and is now minor support.

0.7620 provided support in May 2012 and is resistance once again.  0.7550 now has a stronger role after working as a very distinct line separating ranges.  It had a similar role back in January.

Below, 0.7470 is significant support after working as support at the end of 2011. 0.7370, which was the trough in December is low support. This is a significant line.

0.7308 is minor support after working as such at the beginning of 2011. 0.72 worked in both directions during the past few years.

0.71 is the last line, after being a distinct trough in March 2011.

Steep Channel

As the graph shows, the pair is trading in a steep downtrend channel since the beginning of May. It is currently closer to the bottom of this channel.

I remain bearish on NZD/USD

There’s still lots of room towards 0.7370 and the situation doesn’t look good. The Chinese slowdown, European troubles and not-so-strong New Zealand economy all weigh on the pair.

Further reading: