WWM - Analytics


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    Today’s Trading Edge: NZD/USD – Kiwi drops following weakening business optimism


    The New Zealand dollar weakened following both a disappointing confidence report and the monthly release of building permits. Business confidence in New Zealand declined to 7.1%, a significant reversal from prior 23.0% reading. The activity outlook also fell to 25.5, the lowest level since last October. Inflation expectations plummeted to 1.39%, the lowest reading on record. The Statistics New Zealand January reading for building permits was -8.2%, its first decline in four months.

    Expectations are growing for the Reserve Bank of New Zealand to become more dovish in next couple of quarters.  ANZ’s Chief Economist Bagrie expects the Reserve Bank of New Zealand to cut rates by 25 bps at the June and September meetings. Global market instability is the key driver for the dovish call.

    Price action on the NZD/USD daily chart shows that the February rally has stalled just ahead of the .6800 handle. The two-day slide is now tentatively breaking below both the 50- and 100-day SMA(s). Immediate support may come from the .6550 level, while deeper support may target the psychological .6400 handle.

    If price breaks below the .6400-.6550 range, major support will come from the 2015 low of .6227. If the bearish move is short-lived, resistance will come from the .6800 handle.

    The trade: Sell NZDUSD at .6625 with a stop loss at .6675 and a take profit at .6525. The Risk/Reward Ratio is 1:2.

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