NZD/USD: Nicely Supported Before FOMC

Kiwi dollar continues to look bullish despite this morning’s slight setback after hitting a 4 month high yesterday. This rally continues the bullishness of last week following RBNZ’s announcement that a rate hikes should be expected in 2014, allowing NZD to outperform all other major currencies. Certainly USD weakness played a huge part, but that only helped NZD/USD to push higher, rather than being the main driver of price’s latest rally. Case in point: EUR/USD, GBP/USD and AUD/USD all failed to climb above Monday’s gap high despite the USD weakness, with NZD/USD the only USD based currency pair able to push for higher weekly highs yesterday.

Fundamental economic numbers wise, this has been a mixed week with lower consumer confidence numbers compiled by Westpac NZ. Performance Services Index has also fallen from 58.2 to 53.2 for the month in August. On the bullish side, REINZ House Price Index has risen yet again, gaining 2.1% from July. Home sales numbers have increased at a lower pace compared to July, but nonetheless stands at a strong 8.5% Y/Y. The increasing housing prices isn’t a new development, but lends weight to RBNZ’s conviction to raise rates in 2014. Q2′s Current Account numbers which are released today are also better than expected, coming in at -1.25B NZD vs an expected -1.9%B. Even though the gap is wider than Q1′s -0.42B, the Deficit to GDP ratio is actually lower, amounting to 4.3% vs Q1′s 4.5%.

Hourly Chart
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Not that this is changing the course of NZD/USD though, prices remain more influenced by technicals currently. NZD/USD actually traded lower following the rebound off the rising trendline (which started from RBNZ announcement), ignoring the better than expected Current Account numbers. Instead, price found supported from 0.822 resistance turned support, affirming the previous assertion that this morning’s decline was technically influenced. Currently price has rebounded higher, with Stochasitc readings rebounding off the 20.0 level in similar fashion to last Friday’s trough. This opens up the rising trendline as the next possible bullish target. However, with FOMC event risk looming, we may not be seeing much directional momentum from now till FOMC’s announcement, and hence it will be highly optimistic to believe that prices will be able to even push above yesterday’s swing high especially since expectations are for Fed to carry out a tapering action this time round – which is USD positive.

Weekly Chart
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Weekly Chart shows the break of 0.81, opening up 0.85 – 0.87 as potential bullish targets. The only imperfection is that Stochastic readings are already within the Overbought region. This is no way suggesting that bullish momentum is over, just that the likelihood of price tagging 0.85 – 0.87 without any significant pullbacks in between may be low. FOMC event tonight may provide the pullback necessary if USD strengthen on a tapering action. This will exert bearish pressure on NZD/USD, and allow Stoch readings to pullback. If NZD/USD remain above 0.81, the bullish breakout will remain intact and will provide a good confirmation for the overall bullish sentiment, opening the door for a strong bullish momentum moving forward.

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