New Zealand business PMI moved to a 3-month high today, making it the largest point increase in 4 months. Both the employment index and new orders have printed cycle lows which paints a more positive picture moving forward, but employment remains below the 50 threshold to denote contraction.
- Headline PMI increased 1.9% to sit at a 3-month high of 56.5
- New orders increased 1.8% to reach 60, a 3-month high
- Production, the 2nd highest sub-index rose the highest at 3% to now sit at 57.9
- Finished stocks was the only decline on a per-month basis at -1.8%, but remains within expansion territory of 537.
With the PMI reads coming in strongly on aggregate it is one of the few developed economies that is still experiencing high growth and future growth prospects.
The Kiwi Dollar responded positively and managed to close the session above both the 50 and 200eMA. The fact it produced a morning star reversal pattern and also managed to climb back above the lower bullish channel (which acted as a sell signal) should be taken note of. It doesn't invalidate the bearish bias outlined recently as we remain below the 0.6840.685 resistance zone, but I do take note of such patterns as they are one of the more reliable ones (particularly on D1 and above).
So for now, my bias remains bearish below the resistance zone but I will continue to monitor for signs of weakness and a break back below the 200 before considering a trade down towards 0.666.
On the flip side, if we do see a break back above 0.685 then we could consider bullish setups, demoting the original analysis to a fake-out.
Continuing on from my volatility assessment I have fine-tunes the analysis to look at volatility of NZD vs majors. To help compare apples to apples, I have viewed NZD as the numerator. On a daily OC (open to close) basis NZDJPY and NZDCHF provide the higher volatility option for both daily and weekly. NZDEUR is joint 2nd with CHF, so traders holding positions for a few days and over may want to consider these crosses. Day-traders could asses the HL (high to low) %ATR ranges and note that NZDJPY, NZDCHF and NZDEUR also provide the higher volatility potential over a given period. Of course spread will be a factor but this can be easily calculated against your potential reward/risk ratio as a percentage. If you can find a currency cross that provides more volatility than say EURUSD (which is one of the lower volatility pairs) then if the spread is adequate in relation to the potential volatility or risk, then it could be considered for trading on lower timeframes.
NZD tests key resistance after positive PMI
The data set helped NZDUSD climb above the breakout line highlighted this week but, whilst we remain below key resistance, can still consider shorts with the correct confirmation. A break above resistance helps us flip to bullish territory.