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NZDUSD: Trading the New Zealand Employment Report

NZDUSD: Trading the New Zealand Employment Report

David Song, Strategist

Trading the News: New Zealand Employment Change

What’s Expected:

Time of release: 08/08/2012 22:45 GMT, 18:45 EDT

Primary Pair Impact: NZDUSD

Expected: 0.4%

Previous: 0.4%

DailyFX Forecast: 0.4% to 0.5%

Why Is This Event Important:

Job growth in New Zealand is projected to increase another 0.4% during the three-months through June and the ongoing improvement in the labor market may spark a bullish reaction in the NZDUSD as it dampens speculation for lower borrowing costs. Indeed, Prime Minister John Key said the Reserve Bank of New Zealand has scope to lower the benchmark interest rate further amid the slowdown in the global economy, but we may see Governor Alan Bollard continue to endorse a wait-and-see approach throughout the remainder of the year as the economic activity picks up.

Recent Economic Developments

The Upside

Release

Expected

Actual

Trade Balance (JUN)

2M

331M

NBNZ Business Confidence (JUL)

--

15.1

Gross Domestic Product (QoQ) (1Q)

0.4%

1.1%

The Downside

Release

Expected

Actual

Building Permits (MoM) (JUN)

7.3%

5.7%

ANZ Job Ads (MoM) (JUN)

--

-1.4%

Retail Sales ex Inflation (QoQ) (1Q F)

--

-0.6%

The rebound in business confidence paired with the pickup in economic activity may encourage firms to ramp up on hiring, and a large pickup in employment may lead the NZDUSD to retrace the decline from earlier this week as it dampens expectations for a rate cut. However, the protracted recovery in the housing market along with the slowdown in private sector consumption may drag on the labor market, and a dismal print may trigger a sharp selloff in the exchange rate as it opens the door for additional monetary support.

Potential Price Targets For The Release

NZDUSD_Trading_the_New_Zealand_Employment_Report_body_ScreenShot067.png, NZDUSD: Trading the New Zealand Employment Report

As the NZDUSD breaks out of the downward trend carried over from 2011, a positive development may produce fresh monthly highs in the exchange rate, and we may see the ascending channel continue to take shape as interest rate expectations pick up. However, should the print fall short of market expectations, bets for a rate cut may push the kiwi-dollar back towards the 10-Day SMA (0.8112), and the pair may ultimately carve out a lower top in August as the relative strength index continues to find resistance around the 67 figure.

How To Trade This Event Risk

Projections for a faster rate of job growth certainly instills a bullish outlook for the kiwi, and a positive development may pave the way for a long New Zealand dollar trade as it raises the outlook for the region. Therefore, if employment increases 0.4% or greater in the second quarter, we will need a green, five-minute candle following the report to generate a buy entry on two-lots of NZDUSD. Once these conditions are fulfilled, we will place the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will establish our first target. The second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade hits its mark in an effort to preserve our profits.

On the other hand, the ongoing slack within the real economy paired with the slowdown in private sector consumption may push businesses to scale back on hiring, and a dismal print may trigger a sharp decline in the exchange rate as it appears to be carving a lower top in August. As a result, if the employment report misses market forecast, we will implement the same strategy for a short kiwi-dollar trade as the long position mentioned above, just in the opposite direction.

Impact the New Zealand Employment report has had over the NZD during the last quarter

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

1Q 2012

05/02/2012 22:45 GMT

0.3%

0.4%

+4

-69

1Q 2012 New Zealand Employment Change

NZDUSD_Trading_the_New_Zealand_Employment_Report_body_ScreenShot062.png, NZDUSD: Trading the New Zealand Employment Report

New Zealand employment increased another 0.4% in the first quarter following the 0.2% expansion during the three-months through December, while the jobless rate unexpectedly climbed to 6.7% from a revised 6.4% as discouraged workers returned to the labor force. The initial reaction to the employment report was short-lived, with the NZDUSD quickly bouncing back from 0.8038, but the high-yielding currency struggled to hold its ground throughout the day as the pair closed at 0.7995.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

Questions? Comments? Join us in the DailyFX Forum

View the Expo Presentation on ‘Trading the News’ For Additional Resources

Meet the DailyFX team in Las Vegas at the annual FXCM Traders Expo, November 2-4, 2012 at the Rio All Suite Hotel & Casino. For additional information regarding the schedule, workshops and accommodations, visit the FXCM Trading Expo website.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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