Is NZD/USD changing direction? New Zealand Economy Upbeat Data

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Is NZD/USD changing direction? New Zealand Economy Upbeat Data

10:00 AM (EST) Update

After a major three-month free fall which made the Invest Diva students hefty pips, Mr. Kiwi seems to now have found himself a cheerleader, uh, I mean a support, as he dances with Ms. USA. And as the cheerleader song goes, this support at 0.65 seems to always be there when Mr. Kiwi needs her; At least this has been the case in the past month. Is that is for the NZD/USD downtrend on the forex dance floor?

Technical Points

The New Zealand dollar – US dollar pair (NZD/USD) has been trapped inside a descending triangle chart pattern right above a key support level at 0.65  below the Ichimoku cloud with the RSI  heading down below the neutrality area. If you were paying attention during your Forex Coffee Break Video Education Course, you’d know that a descending triangle by nature forms during a downtrend and is normally a continuation pattern. So from a technical point of view, this could merely be the calm before the storm of further downfalls towards the lows of 2009 with 0.62 as next stop.

But what do the other points of the Invest Diva Diamond Analysis suggest?

Economic Points

New Zealand Side

Well, well, well. Look what the Kiwis have been up to. Despite the downturn in New Zealand employment and falling commodity prices, the Kiwis managed to print a MUCH better than expected Global Dairy Trade (GDT) price index on Tuesday as well as better than expected quarterly Producer Price Index (PPI) input.

The GDT climbed to 14.8% which is awesome comparing to last month’s release of -9.3%. When a country is heavily reliant on dairy product exports, (HINT: New Zealand) the GDT index uptick is very joyous news for its currency. However we may want to hold our horses because this was the first positive release after 10 consecutive drops this year.While it certainly is good news, we’ve got to wait and see if the dairy industry can keep up the good work.

The PPI came in green for the first time in a year at -0.3% versus the -0.5% and higher than last quarter’s -1.1%.

Beginning of August we saw another upbeat note, average ordinary time hourly earnings chalked up an annualized 2.8% increase while wage inflation (which includes overtime pay) saw a healthy 1.6% year-over-year gain. But even if people are making more money and salary growth is outpacing New Zealand’s 0.3% annual Consumer Price Index (CPI) by a mile, the rising number of unemployed blokes might still end up weighing on consumer spending and overall economic growth.

So all in all, it seems like the Kiwis are trying to pick themselves up amid a dismal economic situation, but could they keep it up? Ban of New Zealand (BNZ) strategists apparently don’t think so as they have maintained their negative stance on the NZD.

US Side

It has been a semi busy and not quite impressive week for the US dollar (aka Ms. USA.) The US building permits came in negative at 1.12M versus the 1.23M expected and on Tuesday. Consumer Price Index (CPI) also came in lower than expected at 0.1%, a disappointment comparing to last month’s printing of 0.3%.

These are important because the Fed could be looking at each and every one of the economic data before making a decision on the potential September interest rate hike. I guess we’ll know a bit more about the US economic situation towards the end of the week with FOMC member’s comments coming up on Thursday, as well as this week’s unemployment change and home sales data.

China’s Side

The one thing that has continued to put pressure on Mr. Kiwi is China’s currency devaluation and their economic slowdown.  With the Chinese  equity market bloodbath, there’s no denying that the world’s second largest economy is facing a gloomy outlook.

According to a report by the U.S. Department of Agriculture, China is projected to buy only 400,000 tons of milk powder this year, down from the 671,000 tons imported in 2014. Dairy exports from New Zealand to China are down 65% through May and could see further declines in the succeeding months.

Trading Idea

If you are not in a bearish position already, then maybe you’d want to wait for a break below the support level of 0.65 to enter a confirmed long-term bearish position. For now and during the range, I have moved my limit higher up to 0.6450 due to the mixed signals based on the Invest Diva Diamond Analysis

Suggested stops and limits:

Support Levels Turning Point Resistance Levels
0.65 0.68 0.74
0.62 0.7090 0.77

*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.