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NZDUSD Outlook: Week of 2/23

by on February 22, 2014 4:31 pm BST
 

NZDUSD ending up selling off after reaching the supply zone indicated in last week’s currency outlook. The pair fell 80 pips last week and fell below the .8300 objective, closing the week at .8277. A bevy of less than expecting fundamentals hit the kiwi the last week.

New Zealand saw a drop in consumer confidence fell from 135.8 to 133 in January. The print is still remains at the highs not seen since the recession and only seen as a modest move. “But that sort of movement is nothing more than noise,” said Cameron Bagrie, chief economist at ANZ. He continued, “a pick-up in consumer spending – to be expected if consumer confidence trends are followed – is to be welcomed, provided it is supported by income generation.” However, only seven percent of 1,009 surveyed said they were better off than last year, down from 11 percent. This could be seen in the retail sales falling lower than expected, coming in at 1.2 percent versus the 1.7 percent forecast. Yet, retail sales did rebound sharply from the previous reading of negative .2 percent.

The government saw a larger than forecasted balance deficit which expanded to $1.79 billion within the six months ending on December 31. The deficit widened $380 million than expected. Core tax revenue was well below forecasted, $602 million opposed to the $29.18 billion previously expected. Net debt rose to $62.3 billion, or 28.8 percent of gross domestic product, but gross debt was below forecasted at $82.98 billion, or 38.4 percent of GDP.

The continued weakening in China hit the kiwi as the HSBC flash manufacturing data came in at 48.3, indicating further contraction. NZDUSD took a hit being associated with the risk/commodity currencies, but a slowdown in China’s economy will impact New Zealand’s dairy industry, which exports the majority of its dairy output to China. Furthermore, New Zealand’s PMI data came in weaker than expected in the fourth-quarter.

The daily chart shows that price closed lower on the weak but supported by a bevy of key EMAs, the 20, 50 and 72. The US dollar saw some support during the end of the week, and the NZDUSD closed below the 61.8 percent Fibonacci retracement from the yearly high at .8675. The RSI bounced from the 60 level, which has been either a make it or break it point. Strength in the kiwi’s ascent may be weakening near the short-term.

If price action can break through the layered EMAs, it is likely the pair with trend to .8210, the current 200 EMA, before hitting the 50 percent low-to-high Fib. level. The previous support, now resistance, will be the first hurdle to continue upward at .8295/8300, while deeper resistance can be found at .8335/45 before retesting the supply zone.

If price action heads lower, the 20 EMA could begin to drag down through the 50 and 72 EMA which will cause a double bearish crossover and could accelerate technical selling.

1D Chart of NZDUSD

1D Chart of NZDUSD

Next week’s economic data releases will be mild during the beginning of the week with credit card spending YoY and inflation expectations QoQ, Sunday and Monday, receptively. Wednesday will bring the highly important trade balance data, and the following day will release the ANZ business confidence report. Friday, the Chinese state-released manufacturing PMI will be release after-hours and will sure impact the pair the following week.