Technical Analysis NZDUSD : 2016-06-23
IFC Markets | Jun 23, 2016 09:40AM ET
New Zealand dollar unencumbered by Brexit fears
The New Zealand dollar has been strengthening since the end of January. The Reserve Bank of New Zealand left the interest rates unchanged at June 9 meeting but maintained a dovish stance. Will the New Zealand dollar continue strengthening?
The Reserve Bank of New Zealand left the Official Cash Rate unchanged at 2.25% at its June 9 meeting. The central bank had left the rates unchanged at April meeting too following an unexpected 0.25 percentage point cut in March after four rate cuts in 2015. The RBNZ stated that lower commodity prices and slower global growth were main international risks to New Zealand’s economic outlook and it will maintain accommodative policy stance to ensure average inflation reaches the middle of its inflation target range of between 1.0% and 3.0%. Inflation is far from hitting central bank’s target though it increased 0.4% year-on-year in the first three months of 2016, accelerating from a 0.1% rise in the fourth quarter of 2015. The growth in consumer prices was in line with expectations, with higher housing cost the main contributor to consumer price index growth. Unemployment in first quarter rose to 5.7% from 5.4% in previous quarter as participation rate increased to 69% from 68.5% in the previous quarter. The Q1 economic growth at 0.7% over quarter was below the 0.9% growth recorded in fourth quarter GDP of 2015. New Zealand’s April trade surplus of New Zealand $292 million was higher than the $184 million surplus a year earlier after the current account in first quarter recorded a $1.3 billion surplus following almost $2.9 billion deficit in the previous quarter. Reversal to a surplus in current account is a bullish development for New Zealand dollar, reflected in gradual strengthening of kiwi since the start of 2016. At the same time the Business New Zealand Performance of Manufacturing Index came in at 57.1 in May of 2016, above the 56.5 reading in the preceding month. A reading above 50 indicates an expansion of the manufacturing sector. Manufacturing sector has been expanding every month since 2013. On the negative side the growth in retail sales slowed in first quarter to 0.8% over quarter from 1.1% in fourth quarter 2015, and consumer confidence decreased for second consecutive quarter in Q2 to 106.0 points from 109.6 points registered in Q1 according to Westpac consumer confidence indicator. Although consumer confidence declined it is still above the 100 threshold which separates optimism from pessimism. A possible UK exit from EU after June 23 referendum is the main short term risk to downside for kiwi. On June 27 May balance of trade will be released and on June 30 Australia and New Zealand Bank Business Confidence index for June will be published.
NZDUSD has been trading with upside bias since the end of January. The pair has risen above the last fractal high with the 50-day moving average MA(50) rising above the 200-day moving average MA(200) after bouncing off of the MA(200) in the beginning of June. The Parabolic indicator gives a buy signal. The Donchian channel is tilted upward indicating uptrend. The Parabolic indicator gives a buy signal. The RSI oscillator is reaching the overbought zone. The MACD indicator is above the signal line and the zero level which is a bullish signal. We believe the bullish momentum will continue after the price closes above the last fractal high and upper Donchian channel at 0.7167. A pending order to buy can be placed above that level. The stop loss can be placed below the last fractal low at 0.69629. After placing the pending order the stop loss is to be moved every day to the next fractal low, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop loss level(0.69629) without reaching the order(0.7167), we recommend cancelling the position: the market sustains internal changes which were not taken into account.
PositionBuyBuy stopabove 0.7167Stop lossbelow 0.69629
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