NZD/USD Analysis/Forecast
Investment Resources | Mar 14, 2017 02:36AM ET
Option 1
NZD/USD is around the end of the wave b (red) of the wave B (purple).
The wave c (red) of wave B (purple) will most likely end around the area of the top of the wave a (red) somewhere around 0.7380 area.
Nevertheless we do no expect the wave C (purple) to go too deep. From point of view of pure statistic it should most likely finish around the level of 0.6200 (100% retracement of the first purple ABC pattern) but this doesn't fit with our fundamental views therefore we expect more shallow retracement of around 76-79% which should take wave C (purple) somewhere around 0.6500 area.
Technical probability: moderate/high
Fundamental probability: moderate
Option 2
NZD/USD is somewhere in the middle of the wave C
If this option will take place we expect the wave C (purple) to be completed around 0.63850 level as this level perfectly fit with both pure match probability and also our fundamental views.
Technical probability: moderate/high
Fundamental probability: high
Option 3
NZD/USD is in the end of of the wave 2 (green) of the wave 3 (purple) or it could be even in the end of the wave 2 (brown) of the wave 3 (green) of the wave 3 (purple) though it is less likely.
Technical probability: low/moderate
Fundamental probability: low/morerate
What we expect is going to happen:
- FED will increase interest rates in March which will strengthen the USD and push the NZD/USD pair down.
- The move of NZD/USD will be even more supported by expected (temporary) devaluation of the commodities, including gold, which will gravitate also the commodity currencies to the north.
- We believe the investors are still uncertain regarding New Zealand economic outlook. And this could lead, in combination with mentioned facts, to panic selling of the pair. Nevertheless the skepticism seems to be based more on misperception of certain facts, market psychology rather than reality. It is why we are prepared to buy the deep in NZD/USD pair.
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This is our fundamental analysis of New Zealand if you were interested in more details:
New Zealand
The combination of increased unemployment to 5.2% (from 4.9% over one quarter), along with the decrease in the value of manufacturing PMI to 51.6 (from 54.2) and the sluggish dairy prices, create the impression that New Zealand’s economy might be in some trouble, which is moving the New Zealand dollar down. Nevertheless, we have reason to believe that this perception could be rather distorted, and the New Zealand economy is in better condition than it appears or is reflected by the market at the moment:
- Although unemployment ticked up to 5.2% (from 4.9% over one quarter), the increase has not been down to losing jobs, as the number of employed persons increased to 2510k (from 2494). However, the number of unemployed persons increased to 139k (from 128k), and the increase in overall unemployment must be down to the changes in the structure of the population (the number of people in the productive age has increased). This should not be surprising down to the rather high visitors&migrants turnover. Therefore, we cannot consider the increase in overall unemployment as sign of an under-performing economy.
- The decrease in manufacturing PMI has been also been experienced by neighboring Australia. Nevertheless, the Australian business confidence increased simultaneously and significantly. The business confidence in New Zealand has not been increased likely because they have not been exposed to so much
positivism and encouragements from their central bank as the Australians were although we are convinced they deserve it too. - We would not worry at all regarding the fluctuation in dairy prices, as there is no long-term trend which would indicate that dairy products are becoming cheaper.
- New Zealand has a strong and increasing GDP (3.5% annually, 1.1 increase over the last quarter). Inflation level looks good and doesn't seem to indicate problems.
- It is definitely worth mentioning that New Zealand has managed to decrease their Government Debt to GDP to 24.6% from 25.1% in the year 2016, which indicates that New Zealand economy is not only performing well, but is also highly sustainable.
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