Kiwi Dollar enjoyed a huge rally following a hawkish RBNZ announcement yesterday, but price failed to push above Asian highs and instead mostly flat throughout. Nonetheless bulls would have been glad to see the rest of yesterday’s trade staying mostly above 0.812 – the level where price settled after the knee jerk bullish reaction following the RBNZ event. Unfortunately, minor bearish fundamental winds pushed Kiwi Dollar lower during early Asian trade. All the scheduled news released today was below expectations. We have Business NZ Performance of Manufacturing Index falling from 59.5 to 57.5 to start the morning off, followed by falling in Food prices by 0.5% M/M. ANZ Consumer Confidence which came next was perhaps the worst of the lot, falling by 3.4%. All 3 news are generally not significant, but together they paint a bearish picture for economic growth, and tarnish the bullishness of RBNZ’s statements yesterday.
However the main selling pressure came slightly later, at 10am SGT (10pm EDT) when the rest of the Asian market has fully opened. There wasn’t any news releases then, and the decline in Kiwi Dollar appears to be the resultant of lower risk appetite as seen from the decline of Asian stocks during the same period. When 0.812 and confluence with Channel Bottom was breached, bearish technical pressure took over, allowing price to tag 0.81 round figure briefly. Bulls will be delighted to see 0.81 holding strongly, sending price back up and currently retesting the 0.815/ Channel Bottom confluence. Stochastic reading is also bullish with readings showing us that we are mid stride in current bull cycle, which put price in a good position to clear the 0.815 level eventually. Nonetheless, if price does fail to overcome 0.815, 0.81 will open up as a clear bearish target once again. But that does not necessary invalidate the uptrend that is currently in play, as price will need to push below 0.81 for that to happen.
Weekly Chart is showing extreme bullishness with price breaking all the relevant resistance level bar the swing high of 3 weeks ago. If we do manage to close above the previous swing high of 0.8163, we may potentially see even stronger bullish reaction come Monday open as that would be the strongest indication of bullish conviction that we’ve seen in the past 3 months. Stochastic readings is also mid stride similar to the hourly chart, suggesting that there is ample space for prices to push higher even though we’ve come a long way from the lows 3 weeks ago. A word of caution though – NZD/USD has been noted to be highly volatile around these levels, and the huge decline seen 3 weeks ago despite pushing above 0.81 initially is a good reminder that we cannot take anything for granted. Considering that a confirmed bullish break here should be able to higher targets closer to 0.85 – 0.87, traders may be able to wait for further confirmation without being too negatively impacted in terms of Risk/Reward ratio.
To complicate matters further, NZD/USD is made up of a pair of currencies both slated to strengthen in 2014; USD due to QE tapering and NZD due to RBNZ purported rate hikes in 2014. It will be foolish to simply think that both forces will net each other out, allowing technicals influence to stand out. Hence, traders who wish to participate in the strengthening of NZD may want to look for other Kiwi crosses instead of participating in the USD volatility.
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