NZD/USD: Business Confidence Hits 20 Months High

Despite the threat of China’s economic slowdown, businesses are remaining highly bullish. Business Confidence numbers came in at 41.8 for the month of April, a huge leap from previous month’s 32.3 and the highest since 2011 July. However, NZD/USD did not react much to the numbers, with price continuing to stay within the consolidation zone of 0.806 – 0.811.

Hourly Chart
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From a technical perspective, recent movements below and above the consolidation zone are merely whipsaws instead of indication of bull/bear intentions. Furthermore, if we zoom out slightly, we can actually see a wider consolidation between 0.801 – 0.817, with the core consolidation between 0.806/11. What does this mean to NZD/USD? With the week and the month coming to a close today, we could see yet more potential whipsaws as liquidity dries up, yet price is unlikely to move away from current consolidation narrative.

Daily Chart
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How does the better Business Confidence numbers fit into a longer-term fundamental narrative? NZD/USD tend not to have any strong long term correlation with Business Confidence figures. However, with business confidence being stronger than before, the pressure will be off for RBNZ to cut its policy rates and incentivize Gov Wheeler to embark on further weakening of NZD. Astute market watchers may disagree, suggesting that the reason why confidence level is growing is primarily due to the lower NZD/USD, which trumps even the threat of global economic slowdown. The dichotomy of these 2 possible interpretation could possibly explain the non-reaction of Kiwi post announcement, as traders are at a loss of what to truly make out of it.

From a technical viewpoint, price is undoubtedly in a downtrend starting from 1st May, with a move above 0.818 needed to invalidate current bearish pressure. Stochastic readings suggest that a bull cycle is currently underway, which makes a a move back towards 0.818 possible. With the possibility of USD weakening due to slowing down of US stocks, there is a good case for NZD/USD to retest 0.818 to be made. However, given the ambiguity of fundamentals and short-term technicals, traders should lookout for further confirmation during such volatile times.