When it rains it pours, or does it? New Zealand’s economy suffered a huge setback due to China’s ban of dairy imports from New Zealand over the weekend, sending NZD/USD to a low of 0.774 on Monday. Prices has since recovered strongly thanks to AUD/USD recovery and weakness spotted in USD both pushing NZD higher. Price reached a high of 0.7918, but has yet to produce a convincing break of 0.791 resistance when latest results from Statistics New Zealand’s quarterly Household Labour Force Survey showed an increase of unemployment rate from 6.2% to 6.4%, higher than the 6.3% median forecast.
This should naturally invoke bearish pressure, and NZD/USD bears did obliged and traded slightly lower immediately. However, price only managed to fall to a low of 0.789, and recovered quickly to above 0.7915 within the next hour. This suggest that the underlying sentiment of Kiwi Dollar may not be as bearish as we previously thought. Or perhaps, the News itself may not be as bearish as the headline suggest.
There are good reasons to believe that the employment market isn’t really that bad. First off, the 6.4% headline figure is still lower than the 2012 and 2011 average. Furthermore, NZ Unemployment Rate has been highly volatile in the past, with a standard deviation of 1.40% and variance of 1.95. In comparison, an over expectation of 0.1% is less than 1 tenth of standard deviation, and can be assumed to be “within target” based on 99% certainty. Furthermore, the increase in unemployment rate seems to be led by an increase in Participation Rate, with actual numbers of employees actually increasing more than expected. All these suggest that the headline rate increment is misleading, with New Zealand’s labor market remaining highly robust. The only blip amongst the slew of numbers released was Private Wages, which grew at 0.4% versus an anticipated 0.5%, but nonetheless growing at a similar pace of last quarter. This is not even an entirely bad thing, considering that NZ employers would prefer that wages not growing out of hand with NZ economy not looking so hot right now.
With current fundamentals not exactly pointing lower, coupled with the fact that bullish momentum is continuing strong from a technical standpoint, there is a huge likelihood that price may be able to rebound from Channel bottom higher. Considering that price has been trading consistently within the Channel, and the lack of reaction in either direction on the Unemployment Rate release, it seems reasonable to assume that the decline seen today is based purely on technicals and hence affirms the previous assertion that a rebound from here may occur.
Stochastic readings beg to differ though, with readings suggesting a fresh bearish cycle is underway. However, we’ve seen Stoch troughs around current levels, hence it will not be too surprising to see Stochastic readings reversing from here. However, should price does break Channel Bottom and preferably below 0.785 support, the bearish cycle signaled by Stochastic should not be ignored, and may lead the way back to 0.780 for a continuation of last week’s downtrend.