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New Zealand Dollar Vulnerable as Rate Expectations Falter

New Zealand Dollar Vulnerable as Rate Expectations Falter

2011-02-11 21:35:00
Michael Wright, Currency Analyst
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New_Zealand_Dollar_Vulnerable_as_Rate_Expectations_Falter_body_TOF211NZD.jpg, New Zealand Dollar Vulnerable as Rate Expectations Falter

New Zealand Dollar Vulnerable as Rate Expectations Falter

Fundamental Forecast for New Zealand Dollar: Bearish

The New Zealand dollar slipped 1.25 percent against the greenback on last week as risk aversion regained its footing, while fundamental developments in the domestic economy painted a bearish picture. As the Kiwi looks poised to selloff from its current level, currency traders should caution any long positions heading into next week’s trade.

Retail sales in New Zealand will kick off next week’s event risk for the Kiwi. As of late, economists’ are forecasting a 0.4 percent decline in sales for the month of December after November’s gain of 1.5 percent. The report is of particular importance due to the fact that sales contribute towards economic activity. A dismal release could add further pressure on the kiwi following recent statements by New Zealand’s finance minister in which he said that the economy might have contracted in the fourth quarter of 2010, which will mark the region’s second recession in approximately two years. At the same time, currency traders will be faced with producer prices and consumer confidence reports for the fourth quarter and February respectively. Following the dismal housing data in January which added further concerns that the housing market will get worse before it gets better, traders should not rule additional downbeat releases this upcoming weak. Comments by policy makers in New Zealand will also have to be closely monitored.

With regards to price action, the NZDUSD has extended its two day decline and now looks poised to test 0.7540, which coincides with the rising trend line on the daily chart dating back to July 1st. At the same time, the MACD and slow stochastic indicator are pointing to further losses in the pair. If prices can manage to make a clear break below the 0.7540 barrier, the next level of support will be the 0.74 area. It is also worth noting that our speculative sentiment index stands flipped to positive territory for the first time since in over two weeks. As the change in “crowd” dynamics shifts, I will look for selling opportunities. -MW

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