Why is this report tradeable?
For one, retail sales is an early gauge of economic activity. It encompasses how much people are spending on retail items such as iPads, Louis Vuittons, and Porches. If retail sales is on the rise, chances are that GDP will follow suit!
What makes this release so particularly intriguing is that New Zealand actually only releases retail sales growth figures on a quarterly basis. For those of you who suck at fractions, that means its only released 4 times a year!
With the poor employment figures we saw last week, traders may pay extra attention to the Kiwi when this report comes out.
Expectations and Trends
If you're planning on trading this report, watch out for it tomorrow at 9:45 pm GMT.
Keep in mind that that New Zealand's retail sales picked up by 1.3% in the second quarter after dropping by 0.6% in Q1 2012.
This time around market geeks are looking for a 0.4% uptick in Q3 2012. This probably makes sense as retail sales reports have been printing upticks in Q3 for the past three years, which could indicate a post summer season trend.
Now, let's take a look at the past two releases to see how tomorrow's release could play out:
May 13, 2012 (Worse than expected, -1.5% vs. 0.7%)
Back in May both the headline and core retail sales numbers came in much worse than expected. As a result, NZD/USD found intraday resistance at the event candle's high and even dropped to 70 pips below its open price during the U.S. session. The pair capped the day around 50 pips lower than where it was before the report's release.
August 13, 2012 (Better than expected, 1.3% vs 0.7%)
The pair wasn't so lucky in August either, even when the retail sales numbers surprised to the upside. The headline figure came in at 1.3% against expectations of a 0.7% growth, but the core figure missed by 0.1%.
Much like in May, the pair encountered intraday resistance at the event candle's high and made new lows during the U.S. session. Unlike in May though, the pair barely retraced as it ended the day near its intraday lows 40 pips down from where it was before the release of the report.
Tips and Tricks
Going through the rest of my database, I think there are two potential ways to trade this report:
1) Trade the news: This is a pretty straightforward strategy. Just place buy and sell stop orders above and below market price. It would be better if price was consolidating around key support and resistance levels. Aim for about 20 to 60 pips, and hold on to the trade for a maximum of one hour. I repeat, DO NOT hold for the trade for over an hour. History shows that the initial move isn't normally sustained and that NZD/USD is prone to reverse later in the day.
2) Fade the move: Alternatively, you can just wait one hour after the report and fade the initial move. Ideally, you'd want to put in a reverse position when price is testing or stalling at a support or resistance level.
Of course, there's no telling what may happen during the release. For all we know, it will barely elicit any reaction in the markets at all! If you aren't the type to trade news reports, you might best be served just sitting this one out and observing!