New Zealand’s Manufacturing sector continue to grow, with the latest Performance Index coming in at 53.4 versus a par read of 50.0. However, the rate of growth has taken a set back due to higher Kiwi Dollar and the ongoing drought that has been affecting the overall economic health of New Zealand. March readings are significantly lower than Feb’s 56.3 print, and resulted in Kiwi dollar trading slightly lower to 0.8575 after the news.
Price managed to rebound higher during early Asian trade as the underlying sentiment for Kiwi Dollar remains high. Price remain elevated, but face overhead resistance in the form of the rising trendline. Stochastic reading is also forming the next interim trough within the Oversold region, similar to what we’ve seen during Yesterday’s US trading session – where readings bounced higher from 80.0, allowing price to trade into new highs.
NZD/USD is clearly forming higher highs and higher lows on the daily chart since November’s rally. Price is breaking away from a sideways trend between 0.815 – 0.85 to establish the likelihood of a strong bullish trend. A large contributor to this current shift can be attributed to the latest hawkish tone from RBNZ Deputy Governor Spencer. Rising housing prices is a huge concern and Spencer has indicated that rate hike is a viable option, spurring speculation that RBNZ will step in soon in order to cool the market. However, raising rates will have the undesirable effect of pushing NZD/USD even higher, which will be a toll on New Zealand’s exporting economy. RBNZ is caught between a rock and a hard place due to the 2 seemingly mutually exclusive objective. This would also mean that current bullish trend/bullish breakout scenario may find it hard to extend gains further, and possibly fall back eventually to test the previous swing high level once again. A rising Channel could also be drawn (blue dotted line), which will support a pullback scenario towards the bottom of the channel especially if price manage to break below 0.845. However there is no evidence of pullback or even slowing bullish momentum right now with Stoch readings still looking higher and a breakout beyond the blue channel remain possible with current bullish impulse.
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