NZD/USD: Highest Consumer Confidence Since Financial Crisis

NZD/USD rallied during yesterday’s early US session after the weaker GDP print sent USD tumbling temporarily. Price fell lower during the rest of the trading session, trading below the ceiling of 0.78, but nonetheless still slightly better off than pre-US session where price wasn’t able to breach 0.777. This mild bullish pressure was given yet another boost during Asian hours when NBNZ Business Confidence number came in much stronger than before, jumping from previous month’s 41.8 to 50.1, the highest read since the financial crisis started since 2007. This pushed price above 0.78 once again, but this time round bulls were stalled by the 38.2% Fib retracement around 0.782 and is currently trading slightly lower but above 0.78 nonetheless.

To fully appreciate how strong the resultant rally was, we can simply look at the NZ Trade Balance data released slightly more than 2 hours prior. Net Trade Balance came in at 71M vs 427M expected, contributed by the huge disappointment in Exports which amounted to only 4.08B NZD vs an estimated 4.45B. This miss was mitigated slightly by the miss in Imports estimate, coming in at 4.01B vs an expected 4.02B. NZD/USD sank lower slightly, falling less than 10 pips, with 0.77 holding firm. This is interesting considering that the decline from 0.787 to below 0.787 was fresh, and bears could have easily seized the initiative to ride lower easily. The fact that it didn’t happen suggest that bulls are strong, and that the “overreaction” to a mere sentiment data confirms the bullish sentiment, which may lend strength to 0.78 support.

Hourly Chart
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Looking at technicals, given that Stochastic readings are still pointing higher with a fair distance between Stoch and Signal line, we cannot call current bullish cycle as over. However, it is likely that a Stoch/Signal cross would occur should price break below 0.78, and that would be a stronger bearish sign from Stochastic which opens up 0.77 as a potential bearish target. On the other hand, if current bullish cycle remain in play, we could see price testing for 0.787 and 50.0% Fib once more, especially if the 0.782/38.2% Fib is broken. Nonetheless, price may find it hard to break the 50.0% Fib with Stochastic readings rather close to the Overbought region.

Weekly Chart
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From the longer-term timeframe, price has successfully broken the multi-year trendline last week, and this week’s rally can be interpreted as a corrective retest of the breakout – if price remain below trendline that is. However, if we were to draw another parallel trendline from June 2010 lows to be used as fakeout buffer, we would notice that price still has some distance to go before even testing the low end of the buffer. The relevance of this buffer is subjective, but given the fact that Stochastic reading suggest that a bullish cycle may be in play if current momentum remains, coupled with the fact that the 1st breakout attempt 2 weeks ago ultimately failed, it doesn’t hurt to be more prudent especially given current volatility in the market.

Fundamentally, it is unlikely that long-term outlook for New Zealand will change much because of this better sentiment. Last week we’ve seen a weaker than expected GDP print, and the continuing under expectation exports are huge concerns which will push RBNZ to adopt rate cuts/NZD intervention at every juncture possible. With that in mind, outlook of NZD will remain bearish, provided that USD continue to remain strongly bid especially after Fed’s intention to taper in 2H 2013.

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