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NZD/USD Rebound to Gather Pace on Strong New Zealand Employment

NZD/USD Rebound to Gather Pace on Strong New Zealand Employment

David Song, Shuyang Ren,

- New Zealand Employment Growth to Pick-Up for First Time Since 3Q 2013.

-Jobless Rate Expected to Downtick to Annualized 5.5%- Lowest Since 1Q 2009.

For more updates, sign up for David's e-mail distribution list.

Trading the News: New Zealand Employment Change

A faster rate of expansion in New Zealand Employment may generate a more meaningful rebound in NZD/USD as it boosts interest rate expectations.

What’s Expected:

NZD/USD Employment

Click Here for the DailyFX Calendar

Why Is This Event Important:

Despite the verbal intervention, a marked pickup in job growth may put increased pressure on the Reserve Bank of New Zealand (RBNZ) to further normalize monetary policy, and the NZD/USD may make another near-term run at the 0.8000 handle should the report raise the outlook for growth and inflation.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Performance of Services Index (SEP)

--

58.0

Purchasing Manager Index Manufacturing (SEP)

--

58.1

Gross Domestic Product s.a. (QoQ) (2Q)

0.6%

0.7%

Firms in New Zealand may further expand their labor forces as they boost production, and a stronger-than-expected print should trigger a bullish reaction in NZD/USD as it boosts interest rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Building Permits (MoM) (SEP)

1.0%

-12.2%

Trade Balance (SEP)

-625M

-1350M

REINZ House Sales (YoY) (SEP)

--

-12.0%

However, the slowdown in global trade along with efforts to cool the housing market may drag on the labor market, and a dismal employment print may spur fresh yearly lows in NZD/USD as it gives the RBNZ greater scope to retain its current policy for an extended period of time.

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How To Trade This Event Risk(Video)

Bullish NZD Trade: Employment Climbs 0.6% or Greater

  • Need green, five-minute candle following the data print for a potential long NZD/USD trade
  • If market reaction favors a bullish kiwi trade, buy NZD/USD with two separate position
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit

Bearish NZD Trade: Job Growth, Unemployment Rate Disappoint

  • Need red, five-minute candle following the release to consider a short NZD/USD position
  • Carry out the same setup as the bullish kiwi trade, just in reverse

Read More:

Price & Time: A Contrarian’s Paranoia

COT: Yen Speculators Caught Off Guard

Potential Price Targets For The Release

NZD/USD Daily Chart

NZD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Series of lower-highs continues to cast bearish outlook; remains at risk for a further decline as the RSI fails to establish a bullish formation.
  • Interim Resistance: 0.7975 (50.0% retracement) to 0.8000 handle
  • Interim Support: 0.7700 pivot to 0.7720 (38.2% expansion)

Impact that New Zealand’s Employment Change has had on NZD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

2Q 2014

08/05/2014 22:45 GMT

0.7%

0.4%

- 14

- 6

2Q 2014 New Zealand Employment Change

NZD/USD Rebound to Gather Pace on Strong New Zealand Employment

Employment in New Zealand increased 0.4% during the second-quarter after expanding 0.9% in the three-months through June, while the jobless rate unexpectedly fell to 5.6% to mark the lowest reading since March 2009. Despite the downtick in unemployment, the persistent slack in the real economy may further delay the normalization cycle as the Reserve Bank of New Zealand (RBNZ) endorses a neutral outlook for monetary policy. Nevertheless, the initial market reaction to the release was short-lived as the NZD/USD ended up closing the day at 0.8446.

--- Written by David Song, Currency Analyst and Shuyang Ren

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

To be added to David's e-mail distribution list, please follow this link.

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