NZD/USD: Kiwi could fly if NZ CPI beats

A busy week for economic data will start tonight when Statistics New Zealand releases the nation’s third quarter inflation figures. The Consumer Price Index (CPI) is expected to have risen by 0.4% quarter-over-quarter.

A busy week for economic data will start tonight when Statistics New Zealand releases the nation’s third quarter inflation figures. The Consumer Price Index (CPI) is expected to have risen by 0.4% quarter-over-quarter. If correct, this would be an improvement from Q2 when CPI had remained flat, though it would still be a much smaller increase compared to the 1% rise in Q1. Depending on the outcome of CPI, we could see a sharp move in the New Zealand dollar. The data will obviously have to deviate from expectations by a sizeable margin if were to see that sharp movement, though even if it matches forecasts we think that the NZD would rise rather than fall. There will be additional data later on in the day on Tuesday when GDT’s closely-watched Price Index is published. This fortnightly-released index measures the weighted-average price of the 9 dairy products sold at the auction. Previously, the index had shown an unexpected 2.4% drop. Any improvement this time could support the NZD. Changes in dairy prices are very important for the New Zealand economy given that milk, meat, wool and wood products and fish are among its main exports.

From a technical standpoint, the NZD/USD’s near-term direction is not too clear at this stage, although the fact that it has managed to bounce nicely off key support in the 0.7050-7085 range last week is bullish in the short-term. This area was previously resistance and comes in between the 61.8 and 78.6 percent Fibonacci retracement levels. As a result of that bounce, the kiwi has also managed to break back above the 200-day moving average and short-term resistance in the 0.7145-65 area. But with the kiwi already putting in a lower high and a couple of lower lows, it is not clear yet if this is the start of another impulsive up move rather than a corrective downswing. So one needs to proceed with a higher degree of caution at this stage when trying to form a directional bias. As things stand, the short-term bias would remain bullish for as long as price holds above 0.7145-65 support now. Even if price breaks below here, the slightly longer term bias would still remain bullish above the previously mentioned 0.7050-85 range. However, any breakdown below these two key ranges would be considered bearish for their respective time frames. The next levels of potential resistance come in at 0.7205 followed by 0.7280, levels which were formerly support. 

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.