NZD/USD: Trading the New Zealand Trade Sep 2013

New Zealand Trade Balance is released every month, and provides an important snapshot at the health of the economy, in particular the export sector. A reading which is  higher than the market forecast is bullish for the New Zealand dollar.

Here are all the details, and 5 possible outcomes forNZD/USD.

Published on Wednesday at 22:45 GMT.

Indicator Background

Currency demand is directly linked to trade balance  since foreigners must  purchase New  Zealand dollars  to buy New Zealand exports.  Traders should pay close attention to the  Trade Balance  release, as any unexpected reading could affect the direction of NZD/USD.

Trade Balance looked awful in July, as the deficit ballooned to -$774 million dollars. This was way off the estimate of -18 million dollars and was the first deficit since January. The markets are braced for another large deficit for August, with an estimate of -$722 million. Will the indicator surprise the markets with a stronger reading than predicted?

Sentiments and levels

GDP posted a very small gain of 0.2% in Q2, matching the forecast. Consumer and  business confidence  have been steady, and  recent employment releases were solid.  The kiwi has  been red-hot  in September, gaining about six cents against the USD dollar this month. In the US, the dollar remains under broad pressure following the no-taper decision by the Fed. However, the US economy continues to pick up steam, and QE tapering is in all likelihood just a matter of time. So, the overall sentiment is  neutral on NZD/USD towards this release.

Technical levels, from top to bottom: 0.8547, 0.8448, 0.8396, 0.83, 0.8177 and  0.8106.

5 Scenarios

1. Within expectations:  -$750 million to -$690 million. In such a scenario, NZD/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations:  -$689 million  to -$660 million. An unexpected higher reading can push the pair above one resistance line.
3. Well above expectations: Above -$660 million: A  sharply reduced deficit  would likely bolster the kiwi, and the pair could break a second line of resistance as a  result.
4. Below expectations:  -$780 million  to  -$751 million. A  weak  reading could push NZD/USD below one support level.
5. Well below expectations:  Below -$780 million. In this scenario, the  New  Zealand dollar  would likely take a hit, and the pair could push below a second level of support.

For more on the kiwi, see the  NZD/USD forecast.