NZD/USD. The New Zealand dollar allowed itself an upward correction
The price index for dairy products since June 5 is in a negative area, putting background pressure on the New Zealand dollar. The latest Global Dairy Trade auctions (which are held every two weeks) have shown that the cost of basic dairy products is declining against the background of weak demand and overproduction. The NZD/USD pair in the long-term period is within the downward trend – this is clearly seen on the monthly chart. However, on the lower timeframes we see a corrective pullback from the base of the 67th figure, i.e. from the annual lows.
As in the case of the Australian dollar, traders of the NZD/USD should also consider short positions with a more or less significant growth of the New Zealand currency. The overall trend is still bearish, and the short-term success of the bulls of the pair is associated either with the weakness of the US dollar or with a temporary “gap” of the fundamental background. For example, on Thursday, as soon as the pair reached the upper limit of the Bollinger Bands line on the daily chart (i.e. 0.6850), the price bounced off the resistance level and slowly (but surely) fell down.
The price correction of NZD/USD pair is due to the growth of the core inflation in New Zealand. The indicator was not only higher than the forecasts, but also set a kind of record. Thus, the consumer price index in the second quarter increased by 1.7% year-on-year, which is the fastest growth rate in the last seven years. In the first quarter, the indicator also came out at a fairly high level-1.6%. After the growth of retail sales and a small decline in unemployment, this release fuelled an impulse rise in the price of the NZD/USD.
In addition, the dollar bulls of the pair enjoy the uncertainty of the US currency, which is still unable to recover from the statement of Donald Trump to the Fed. Although the dollar index has stopped falling, dollar pairs still feel some pressure. Next week, the Fed will hold a July meeting, and until this moment, the central bank’s members have kept the traditional silence, refusing to comment publicly. So now only Trump “speaks”, and speaks a lot and often – and about China, and about the Fed, and about Europe, and about Russia. The dollar has lost a foothold, and only the Fed will be able to restore confidence in the US currency, or, on the contrary, confirm existing fears.
In other words, the NZD/USD pair can afford a corrective growth under current conditions, but further escalation of the US-China conflict, the decline in the commodity market and the “dovish” position of the Reserve Bank of New Zealand will not allow the bulls to unfold the trend.
At the end of the last RBNZ meeting, the head of the central bank Adrian Orr said that the country’s economy is growing at a slower pace than previously expected. The rest of the rhetoric was in the nature of cautious optimism, but Orr made it clear that in the foreseeable future, the OCR rate will remain at the same level – and if necessary, will be reduced. According to most currency strategists, the rate will not be revised upward until November next year. And in the spring, experts discussed an earlier period – the summer of 2019.
Low demand for dairy products against the background of overproduction also puts pressure on the national currency. The results of the GDT auctions show that the prices of almost all exchange dairy products (except for skimmed milk powder) decreased. Furthermore, business activity in the service sector also slowed to 52.8. The sale of milk and tourism are key sectors of the new Zealand economy, so the decline in the corresponding indicators cannot be ignored.
The trade war between Washington and China also has a negative impact on the New Zealand economy. China is the most important trading partner of New Zealand, so the slowdown of the Chinese economy will affect the key indicators of the island state.
All this suggests that the NZD/USD pair can now show only a corrective growth, but it is not advisable to talk about a trend reversal.
This is also confirmed by the technical picture: on the weekly chart, the NZD/USD pair is located between the average and the lower lines of the Bollinger Bands indicator. This indicates a downward trend. On W1, the pair is also under the Kumo cloud and under all the lines of Ichimoku Kinko Hyo indicator – another argument for sales, as this indicator has formed a strong bearish signal “Parade of lines”. The support level is the lowest of the year at 0.6710.
In the medium-term trade, you can consider sales from the current position to the above-mentioned support or “catch” another corrective growth in the future. The resistance level is 0.6850-the upper line of the Bollinger Bands indicator on the daily chart. If the bulls of the pair manage to break through this level and gain a foothold over it, the pair will open the way to the next resistance level – 0.6935 (the lower limit of the Kumo cloud on D1). However, such growth is unlikely in the near future.