Mingze Wu | Jul 10, 2013 12:49AM ET
Busy busy day for NZD/USD during early Asian trade today. The Kiwi traded lower overnight due to the strengthening of USD led by US stocks, but started to recover when the New Zealand exchange opened, buoyed slightly due to the gains seen in New Zealand stocks. Price received a further boost towards New Zealand midday when Finance Minister English commented that Central Bank rates will eventually rise, prompting speculators to believe that such a move could happen within the near future. NZD/USD rallied strongly following the comment, pushing all the way up to 0.787 before coming back lower.
If bulls were hoping that English’s comments would help to extend current short-term bullish run (see chart below), they will be utterly disappointed as Chinese data totally spoilt the party, with June Exports falling hard at -3.1% Y/Y versus an anticipated 3.7%. Imports have also fallen, coming in at -0.7% versus an expected 6.0%. Strangely, despite the huge disappointment, trade balance for China actually grew from $20.42B USD previous month to $27.12B USD. This is highly unusual, but considering China’s data integrity track record, do not be surprised if there are some padding up here and there. Nonetheless, even if we were to accept that trade balance actually grew so significantly despite the larger fall in exports compared to imports, the reported figure is still lower than the expected $27.8B, based on healthy growth estimates.
Hourly Chart
However, should 0.783 holds, the possibility for a move back towards rising trendline will increase. Stochastic readings are currently suggesting that a bullish cycle will occur soon. That does not mean that price will simply reclaim territory above the trendline, but nonetheless opens up the scenario for price to straddle the trendline and potentially trade higher.
Weekly Chart
With RBNZ Cash Rate announcement coming on 25th Jul, even if Governor Wheeler adopts the hawkish stance of Finance Minister English, we will not hear of it after 2 weeks. Looking at how market reacted to English, it is clear that overall sentiment is one of disbelief, and it is unlikely that speculators will wish to bet that RBNZ will increase rate in the near future. Credit Suisse Overnight Index Swap showed that possibility for rate hike remained at 0% after the announcement, affirming our assertion. As such, price will still be more influenced by techincals and USD direction moving forward, which is currently favoring bulls due to the failure of bears to extend the Channel breakout.
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