Kiwi Dollar received a boost during early Asian hours today due to a higher than expected Retail Sales figure. Q2’s Retail Sales Ex Inflation grew 1.7% Q/Q, much higher than previous quarter’s 0.9% and beating the expected 1.5% by 20 basis points. This gain is all the more impressive when we consider that Q1’s figures have been revised higher as well, from a Q/Q change of 0.5% to the latest 0.9%. This would equate to a gain of 2.2% based on original Q1 figures equating to a stupendous 70 bps over expectation, and matching the highest growth rate back in 2011, and the highest in 5 years.
Core Retail sales similarly recorded a much stronger than expected gain, coming in at 2.3% vs 1.3% expected, and more than double that of previous quarter which has also been revised higher from 0.6% to 1.0%. Using the same adjustments as how we treated the headline figure, this would equate to a 2.7% gain – not the highest in 5 years, but coming 2nd within the past 20 quarters should provide enough decorum in terms of bullish achievements.
Hence it is no surprise that NZD/USD rallied strongly following the news released. However, bulls were not able to hold above 0.798 resistance, which is the swing low of Asian session yesterday and confluence with descending Channel Top. Prices quickly retreated back lower, but found support around 0.796, the ceiling of yesterday’s rebound during US trading session.
Bulls managed to break out of the descending Channel at the 2nd time of asking, likely spurred by the stronger than expected Yuan fixing by PBOC which drove Asian currencies higher against USD. However, the follow-through towards 0.80 is no sheer luck, but an underlining of bullish sentiment of Kiwi Dollar.
Why is the Kiwi Dollar so bullish then despite the recent bearish fundamental factors e.g. spoil milk, higher unemployment rate.
Perhaps turning to bonds will give us the answer. 10 Yr Governmental Bonds have just hit a recent high of 4.45%, pulling the yield curve higher. Considering that NZ Government credit rating hasn’t changed, nor is it in danger of suffering any default or running any deficits, it is certain that the rise in bond yields is not due to a case of increased risk premium. Instead, this is a sign that market is expecting higher Central Bank rates moving forward, a notion that has been aired explicitly by RBNZ Governor Wheeler last month. Hence, it stands to reason that traders of NZD/USD should be buying NZD up for the same exact reason, and they believe that current prices may represent bargain buys.
However, bulls will be facing significant short term resistance moving forward. 0.80 round figure resistance is currently the confluence with Senkou Span A of the overhead Kumo. Price will need to breach the entirety of the Kumo for fresh bullish impetus to emerge. Failure to do so may result in the pull back of price once again given current short-term bearishness.
Weekly Chart presents an even harder challenge. We can see that prices has been rebuffed by the overhead Kumo for several weeks in a row, and current price levels is actually trading below the Senkou Span B parameter. In order to have strong bullish movement, price should ideally break above the previous swing high of 0.808 in order to build confidence that this is not one of those failed attempts in the past. Couple this with the forward bearish Kumo, it appears that bulls have their work cut out for them in order to make sure that this rally is sustainable.