Strong New Zealand Retail Sales to Fuel NZD/USD Resilience
- New Zealand Retail Sales to Pick Up for First Time Since 3Q 2015.
- Will Stronger Consumption Encourage RBNZ to Keep Rates on Hold in September?
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Trading the News: New Zealand Retail Sales
A 1.0% expansion in New Zealand 2Q Retail Sales may fuel fresh monthly highs in NZD/USD as signs of a stronger recovery limits the Reserve Bank of New Zealand’s (RBNZ) scope to implement a series of rate-cuts.
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Why Is This Event Important:
After cutting the official cash rate to a fresh record-low of 2.00% in August, it seems as though the RBNZ will continue to embark on its easing cycle over the remainder of the year as the central bank warns ‘current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range,’ but a marked pickup in household consumption may push Governor Graeme Wheeler to the sidelines as it boost the outlook for growth.
Expectations: Bullish Argument/Scenario
|Value of All Buildings s.a. (QoQ) (1Q)||1.0%||5.3%|
|Gross Domestic Product (YoY) (1Q)||2.6%||2.8%|
|Employment Change (QoQ) (1Q)||0.6%||1.2%|
The ongoing improvement in New Zealand’s labor market may generate a strong consumption report, and a positive development may spark a bullish reaction in the kiwi as market participants scale back bets for a back-to-back RBNZ rate-cut.
Risk: Bearish Argument/Scenario
|Private Wages ex. Overtime (QoQ) (2Q)||0.5%||0.4%|
|Average Hourly Earnings (QoQ) (2Q)||0.9%||0.8%|
|ANZ Consumer Confidence (MoM) (JUL)||--||-0.6%|
However, waning confidence accompanied by weak wage growth may drag on household spending, and an unexpected slowdown in retail sales may drag on the exchange rate as it fuels speculation for additional monetary support.
How To Trade This Event Risk(Video)
Bullish NZD Trade: 2Q Retail Sales Expands 1.0% or Greater
- Need green, five-minute candle following the data print to consider a long NZD/USD position.
- 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 cost; at least 1:1 risk-to-reward.
- Move stop to entry on remaining position once initial target is met, set reasonable limit.
Bearish NZD Trade: New Zealand Household Consumption Disappoints
- Need red, five-minute candle to favor a short NZD/USD trade.
- Implement same strategy as the bullish New Zealand dollar trade, just in reverse.
Potential Price Targets For The Release
- NZD/USD may continue to target fresh 2016 highs as the advance following the RBNZ interest-rate decision largely negates the threat for a head-and-shoulders formation, with the Relative Strength Index (RSI) largely threatening the bearish formation carried over from the end of June; need a close above the Fibonacci overlap around 0.7330 (38.2% retracement) to 0.7340 (61.8% expansion) opening up the next topside target around 0.7410 (78.6% retracement) to 0.7430 (61.8% retracement).
- Key Resistance: 0.7330 (38.2% retracement) to 0.7340 (61.8% expansion)
- Interim Support: 0.6560 (23.6% retracement) to 0.6570 (100% expansion)
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Impact that the New Zealand Retail Sales has had on NZD/USD during the last release
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|05/12/2016 22:45 GMT||1.0%||0.8%||+1||-55|
1Q 2016 New Zealand Retain Sales ex. Inflation
New Zealand retail sales increased 0.8% in the first three-months of 2016 after expanding a revised 1.1% during the previous quarter, with the weaker-than-expected print largely driven by a 3.8% decline in specialized food sales. Moreover, demand for furniture/housewares narrowed 0.3% during the same period, while discretionary spending on clothing/footwear advances 1.7%, with department store sales climbing 0.7%. The New Zealand dollar struggled to hold its ground following the report, with NZD/USD slipping below the 0.6800 handle to end the day at 0.6761.
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--- Written by David Song, Currency Analyst
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