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NZD/USD Holding Pattern Vulnerable to Widening NZ Trade Deficit

NZD/USD Holding Pattern Vulnerable to Widening NZ Trade Deficit

2016-02-25 18:15:00
David Song, Currency Strategist
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Talking Points:

- NZD/USD Rebound Stalls Ahead of Month High- Range Vulnerable to Widening NZ Trade Deficit.

- USDOLLAR Advance Vulnerable to Dismal 4Q Gross Domestic Product (GDP) Report.

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NZD/USD

NZD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • NZD/USD may continue to consolidate within a triangle/wedge formation ahead of the Reserve Bank of New Zealand’s (RBNZ) March 10 policy meeting as Governor Graeme Wheeler keeps the door open to implement lower borrowing-costs, but the long-term outlook remains tilted to the downside as price & the Relative Strength Index (RSI) preserve the bearish formations carried over from 2015.
  • With New Zealand anticipated to post a larger trade deficit in January, a dismal development may fuel speculation for an RBNZ rate-cut amid the ongoing easing cycle in the Asia/Pacific region.
  • Will continue to watch the opening monthly range for NZD/USD as it remains stuck within a continuation, with a move back below 0.6550 (50% retracement) raising the risk for a resumption of the long-term downward trend.
NZD/USD SSI
  • Despite the range-bound price action, the DailyFX Speculative Sentiment Index (SSI) shows the retail FX crowd remains net-short NZD/USD since February 16, with the ratio hitting a near-term extreme earlier this month as the figure slipped below -1.50.
  • The retail crowd appears to be fading the near-term advance in NZD/USD as the ratio slips to -1.43, with short-positions 9.0% higher from the previous week.

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USDOLLAR(Ticker: USDollar):

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

12136.30

12153.89

12122.51

0.00

52.22%

NZD/USD Holding Pattern Vulnerable to Widening NZ Trade DeficitUSDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Despite the larger-than-expected rebound in U.S. Durable Goods Orders, the USDOLLAR remains capped by the 50-Day SMA (12,157), with the greenback at risk of facing near-term headwinds as the advance 4Q Gross Domestic Product (GDP) report is anticipated to show a downward revision in the growth rate to an annualized 0.4% from an initial reading of 0.7%.
  • Nevertheless, as the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, is anticipated to show a pickup in January, signs of stronger price growth may limit the downside risk for the greenback; will watch fresh comments from Fed Governor Jerome Powell and Lael Brainard especially as the U.S. economy approaches ‘full-employment.’
  • Even though the USDOLLAR holds within the previous day’s range, will keep a close eye on the topside targets as the RSI carves a bullish formation, with 12,176 (78.6% expansion) to the 12,200 pivot standing on the radar.
NZD/USD Holding Pattern Vulnerable to Widening NZ Trade Deficit

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--- Written by David Song, Currency Analyst

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

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