NZD Strength Could Surprise Again this Week

Key Points:

• The NZD could be poised to rally further this week.

• GDT Prices are likely to be the driving force behind further upsides.

• Technicals are also hinting at another bullish week.

The NZDUSD was under the control of the bulls last week and it completely recovered from recent losses. However, what was driving the move isn’t immediately apparent given the general lack of much in the way of NZ economic news. Moreover, the NZ data that was seen was fairly disappointing – the opposite of what we would expect given the strength of the overall upswing. As a result, it’s worth taking a closer look at what was influencing the pair last week and what is likely to be impacting it moving forwards.

Starting with last week’s performance, the Kiwi Dollar was under pressure from the get go, declining more than 50 pips by the end of Tuesday as the market reacted to a disappointingly flat NZ Electronic Card Retail Sales result. However, interestingly, this selling pressure proved to be rather fleeting and, from Wednesday onwards, the NZD surged higher which, ultimately, saw it close Friday at a fresh high for 2017 around the 0.7345 mark.

By the looks of it, the momentum for the upswing stemmed from a number of factors, most notably Janet Yellen’s rather dovish testimony to Congress. This being said, the softer US CPI data and the 0.2% contraction in US Retail Sales also played a heavy hand in fuelling buying pressure as the week drew to a close. Regardless of what played the bigger role, the combination of these factors offset not only the early losses but also the effects of the broadly weaker NZ economic news seen throughout the rest of the week – resulting in a net gain for the pair.

As for what is coming next, given how sensitive the pair was to fundamentals last week, the impending NZ CPI numbers and the GDT Price Index are definitely worth a look in going forward. The CPI results are expected to be somewhat softer than last time at 1.9% y/y and 0.2% q/q which could see the pair moderate some of its recent gains. Nevertheless, any movement could be rather subdued given the general dearth of US data and the fact that many traders will be waiting for the GDT figure before making a move.

It is worth noting here that we have had two consecutive contractions in global dairy prices which could see a bout of panic selling for the NZD should we see a significantly negative result. Conversely, a suitably positive outcome will see the markets breathe a sigh of relief – potentially encouraging the Kiwi Dollar to extend last’s week’s rally.

Moving on to the technical bias for the week ahead, the Kiwi Dollar is actually fairly well positioned to continue with recent bullishness. Indeed, with the exception of the stochastics, most other technical indicators are signalling that further gains are on the way. Nevertheless, the Parabolic SAR and the MACD readings warrant a closer look given their particularly strong hints of additional upsides. Specifically, the Parabolic SAR inverted twice last week – effectively renewing its longer-term bullish bias. As for the MACD oscillator, it is on the cusp of a signal line crossover which could see the bears back on the defensive moving forward. If the pair tracks higher, resistance is in place around the 0.7352, 0.7406, and 0.7480 levels.

Ultimately, the outlook for the Kiwi Dollar is looking fairly good this week and the pair could extend recent gains. Indeed, the NZD could be on a path to challenge last year’s highs which might mean that the 0.75 handle and beyond are now firmly in the bulls’ sights. However, even a week of poor fundamentals could put this uptrend in jeopardy which is worth keeping in mind moving ahead.