NZD/USD traded lower during early Singapore trading hours due to unconfirmed reports of China destroying imported NZ milk powders on their latest milk powder scandal. Dairy products is a huge component of NZ exports and GDP, and China is one of the largest export destination for NZ. Should such scandal persist and scare Chinese from purchasing NZ dairy products, NZ’s upbeat economic pictures will surely be affected.
Even before the newswires were flooded with the scandal, NZD/USD was already trading on the backfoot due to USD/JPY pulling back following BOJ’s minutes released a couple of hours before. There was little optimism in the Asian market which saw both Hang Seng Index and Nikkei 225 both trading in the red, pulling risk correlated currencies such as NZD slightly lower.
Despite the sell off, price looks to have found a bottom around the consolidation zone formed on 13th Feb. Current price has not cleared the bearish momentum, with price still trading just under the lows of yesterday. A push higher from here will open up 0.8460 resistance to test for bullish conviction. A break above will open up 0.85 and subsequently a retest of 0.8540 peak once more, though evidence for such move is presently lacking. Conversely, a break below the 0.840 support will invalidate the current short-term uptrend to change bias to a neutral/bearish tone, with further downsides possible.
Longer term chart suggest that price could be still en-route to higher pastures as the current rising Channel remains intact. Support can be found using the Channel Bottom and also the Kijun-Sen (Red Line). This go in line with a hawkish RBNZ with an upbeat outlook for New Zealand, though verdict is still out on how they will react to dairy exports being threatened. In any case, we have leaders from New Zealand drumming up support for higher NZD/USD in recent days. Prime Minister Keys and Finance Minister English have came on record on separate occasions to state the merits of a stronger NZD for consumers. This is one of the few, if not the only time in recent memory that politicians have stated that a stronger currency is better for a net exporting economy. It is clear that the Kiwi Government and RBNZ will not be calling for rate cuts soon, and that will support a bullish bias for the mid to longer term.
However, a caveat emptor for the bulls: overall outlook for NZD/USD is barely bullish, similar to AUD/USD longer term trend. As such, the ability for NZD/USD to break 0.846 resistance is not a foregone conclusion as the above analysis have you believe. Also, on the day which FM English stated the benefits of NZD at its current rates, price was not elevated as traders chose to give more weight to the milk scandal. Therefore, it will certainly be prudent for bulls to continue watch for economic development of NZ as a better indication of NZD/USD direction rather than simply relying on a hawkish RBNZ stance.