Can the NZD Push Higher Still?

Key Points:

• A bullish Kiwi Dollar could continue to rally in the week to come.

• The technical bias has shifted to bullish.

• The RBNZ is worth keeping an eye on.

The NZDUSD was one of the winners of last week and closed out Friday substantially higher despite many other crosses experiencing mixed degrees success. As a result, the question is now whether the pair can maintain its current momentum or if we are going to see it slip back to the downside. To delve into this question, we need to look at both what was driving the NZD’s recent performance and what is likely to by in the driving seat next week.

Starting with last week’s performance, the Kiwi Dollar was bullish for all but one session, a clear response to the broadly better NZ economic data and some less than buoyant US numbers. Particularly of note were the NZ trade figures which included a Trade Balance outcome of 578M – a figure more than double its forecasted result. Additionally, whilst it was somewhat underwhelming, the NZ Annual Budget threw some money around which was little surprise given the recent government surplus but it still managed to generate some positive sentiment for the NZD. The net effect of the generally solid week of fundamentals saw the pair close all the way up at 0.7061.

Moving on to what on the agenda for the week to come, there is an excellent range of economic news releases coming down the line but one stands out in particular. Namely, the RBNZ’s Financial Stability report is due out Tuesday and could set the tone for the rest of the week. Importantly, given that it comes in the wake of a rather lacklustre budget which barely tackles the housing crisis in NZ, we could see the bank taking a less optimistic tone than is usual. Furthermore, the worsening situation in the Australian and Canadian housing markets is, no doubt, heightening the RBNZ’s concerns that the nation’s asset bubble could be in danger of bursting.  

Looking to the technical readings, last week’s strong performance has, for the most part, pushed the pair’s readings into bullish territory. Notably, the NZDUSD is now not only sitting comfortably above its 100 day EMA but the 12 and 20 day averages are also in a bullish configuration. What’s more, we have a highly bullish parabolic SAR reading which would typically suggest that the uptrend will remain in place. The only major factor that would militate against further gains would be the stochastic oscillator which is overbought.

Ultimately, we have a fairly optimistic view for the week to come but this is somewhat tempered by expectations of a tonal shift from the RBNZ. However, the shift in the technical bias could definitely counteract some of the effect of a particularly grim release from the RBNZ which is worth considering. As a result, it may be wise to wait on the central bank’s announcement before attempting to form a bias – irrespective of how well the pair has performed in the lead up.