The New Zealand dollar continued to consolidate this morning as traders await a plethora of key releases this week that may help support the improving domestic fundamentals for New Zealand. Price action overnight for NZD/USD was unable to recapture the .8700 handle and probably will not this morning because U.S. retail sales had a decent reading. The key driver for the U.S. currency remains the easy money policy that remains in place by the Fed. Any weak data points will confirm that bias and should be supportive for commodity currencies.
Bullish Macro Expectations
Tomorrow, we will learn more about CPI for New Zealand and the heavily anticipated release of Q1 GDP for China. Expectations are for inflation to rise in New Zealand and for China to grow by only 7.2% for the first quarter. Inflation is expected to remain firm and as long as we see a reading of +0.5% or higher, a future rate hike in June is still on the table by the RBNZ. Another key release we will require for the next positive leg higher in the kiwi is for China to grow by at least 7.0%.
The daily chart shown above of NZD/USD highlights the bullish channel that has been in place since end of January. Price formed a three drives to a top pattern, which is currently has strong support at .8625. Volatility should pick up over the next 48 hours and a modest pullback may occur as traders unwind bullish bets.
If China does disappoint and has a reading below 7.0%, we may see a selloff that may target the 50-day SMA at .8466 and possibly the 100-day SMA at .8350. A rebound may also be expected in dairy prices this week. Another key release to follow Global Dairy Trade Auction on Wednesday. Soft commodity prices are vital for the New Zealand economy. Last month dairy prices had the worst reading in 13 months and another big miss could weigh heavy on the kiwi.
The trade: Buy NZDUSD at .8580 with a stop loss at .8494 and a take profit at .8840. The Risk/Reward Ratio is 1:3.
Edward J. Moya
WorldWideMarkets Online Trading