Kiwi continue to rise after possibility of rate hikes have been issued by Deputy Governor Spencer. Spencer is concerned over the rising housing prices which may turn into a bubble if not kept in check, and suggest that monetary policy will help to curb its growth. It seems that his concern is indeed legit, with today’s QV House Prices rising to 6.5% Y/Y compared to previous month’s reading of 6.3%, showing an accelerating pace of growth.
The latest housing data push NZD/USD above yesterday’s high as price went up higher on firmer rate hike bets, with market believing the materialization of Spencer’s threat becomes more likely. Price is now pushing towards 0.85 round number which is also around Jan highs. However, as a significant resistance level, it is unlikely that 0.85 round number will play a big part against current bullish trend as this particular level has failed to establish a firm ceiling/floor in recent months. The more significant level appears to be 0.845 (also seen via daily chart below) which price has already broken.
From a technical point of view, we can see 0.845 acting as a strong floor now, rebuffing the retest not once but twice after price first broke higher during US trading hours. Bullish momentum is still going strong, with Stoch still pointing upwards. Nonetheless, there appears to be a pinch coming with a triangle formed on the Stoch chart itself. As it is mathematically impossible for Stoch readings to break 100.0, the only possible breakout for this triangle would be towards the downside – suggesting price may stall soon.
A Triangle is also observable on the Daily Chart. Price appears to have broken towards the upside on the bullish front, though caution should be practiced especially since false breakouts has occurred on both sides before. Without clearing Feb High, current breakout still risk possibility reverting to the sideways 0.815 – 0.850 (or 0.855) trading range since Dec ’12, which means a bear cycle may be underway. Stochastic suggest that such a scenario is possible with readings staying in Overbought region for a prolonged period, and a bear cycle has been threatening to form since Mid March. However, bulls are still holding initiative, and price may still find support on 0.845 or even the rising trendline (whichever is nearer) even in the event of a pullback. Stochastic readings is also interesting with a divergence between price and reading levels, suggesting that we may be still be within a “up cycle” within the Overbought zone. A break below 0.845 and the rising trendline will open up 0.835 as support before 0.815 can be a viable downside objective.
Fundamentally, the same concern addressed yesterday still applies. It remains to be seen whether Spencer speaks in accord to his boss Wheeler’s desires. Wheeler has been spotted threatening rate cuts not too long ago, and it seems strange that RBNZ is adopting a flip floppy stance. Nonetheless, if price is able to push above Feb highs, technical pressure may simply allow bulls to push higher even without fundamental support, just that the likelihood of this occurring may be lower should bears still holding out for a dovish Wheeler stand in the way.
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