Surprise surprise. Despite the drought affecting production and the supposedly 10% overvalued NZD making prices even less competitive, exports from New Zealand actually increased more than expected. March’s exports came in at 4.42B NZD, much stronger than expected 4.28B and an huge improvement compared to previous month. On the other hand, imports fell to 3.70B, lower than estimated 3.82B but higher than 3.46B NZD in Feb. This increase in exports and decrease in imports resulted in a large improvement in the YTD trade balance, halving the previous more than 1 Billion trade deficit to 525M.
However, it is not the trade balance that we are interested in. Yes certainly an improving trade balance will have an appreciative effect on NZD, but what is more interesting is this: The strong NZD (estimated to be 10% overvalued by IMF) is not affecting export volumes but it is helping to save import costs. Given such a relationship, would RBNZ have any incentive to bring NZD lower? Perhaps this is the reason why Wheeler was so hawkish earlier this week, and this also vindicates the Kiwi Government which has been generally supportive of a stronger NZD.
From a technical perspective, the better than expected trade data allowed price to push up higher from the rising trendline. Currently price is trying to retake the base of arching top formed yesterday around 0.852. With stochastic readings forming a trough and looking to head higher, the odds will be on the bulls side.
Daily Chart is less promising for bulls, with price seemingly unable to break the last bearish line of defense in the form of Feb swing high level. If this week is wrapped up with another red candle below 0.853, we could potentially see the strong bullish sentiment potentially downgraded. 0.848 may still provide some good support even if a bearish reversal candlestick pattern is formed by the end of the week, but should price break below, we could see further erosion of bullish sentiment to a neutral/bearish one that could send acceleration towards 0.838 and a possibility of 0.818 should the aforementioned support doesn’t hold.
Stochastic readings is more cheerful though, with readings suggesting that the setback at 0.853 may only be temporarily as current bull cycle is only in its initial stages. Should the 0.855 level be broken, current bull cycle may be able to test 0.868 before readings hit Overbought, which leaves space for further gains. Fundamentally, we already know that RBNZ will not change rates this year (or at least that’s what they proclaim), which means that bulls will need to find strong economic fundamentals to help propel prices higher and continue current bull trend.
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