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Traders Increase Bullish Kiwi Bets to Two-Year High; US Retail Sales Today

Traders Increase Bullish Kiwi Bets to Two-Year High; US Retail Sales Today

Christopher Vecchio, CFA, Senior Strategist

Talking Points

- Traders most bullish on New Zealand Dollar since August 2011.

- Another strong print related to infrastructure cements British Pound growth optimism.

- US Dollar looks to rebound with Advance Retail Sales (AUG) due before stocks open.

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INTRADAY PERFORMANCE UPDATE: 09:40 GMT

MAJORS

AUD

CAD

CHF

EUR

GBP

JPY

NZD

(vs USD)

-0.22%

-0.15%

-0.13%

-0.08%

+0.06%

-0.15%

+0.10%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.03% (-0.64%prior 5-days)

ASIA/EUROPE FOREX NEWS WRAP

The New Zealand Dollar has been a leader in the recent swing higher in risk sentiment, and with traders becoming more bullish amid a shift in central bank policy, the carry currency looks poised to outperform going forward.

On Wednesday, the Reserve Bank of New Zealand suggested that it would hike its main interest rate in 2014, a clear sign that economic growth has simply become too fast-paced and the benefits of looser monetary policy – a weaker currency that would help exporters’ sell their goods to foreign consumers – no longer keeping rates at their post-2008 lows.

In fact, a look at the Credit Suisse Overnight Index Swaps shows that traders are now pricing in +97.0-bps into the New Zealand Dollar over the next 12-months. This is the most bullish bet since the first week of August 2011, before the US lost its ‘AAA’ rating with Standard & Poor’s, and before the NZDUSD plummeted from an all-time of $0.8843 on August 1 to as low as 0.7966 on August 9 (-9.92% in seven trading days).

At this point in time, near-term weakness seen in the New Zealand Dollar is likely to have two causes: exogenous anxiety due to emerging market growth concerns; and technical selling as profit is taken amid overbought conditions. Today, amid key US economic data – the August Advance Retail Sales report - there is a chance for a strong reaction at a critical juncture for the NZDUSD (see the chart below).

NZDUSD 5-minute Chart: September 13, 2013 Intraday

Traders_Increase_Bullish_Kiwi_Bets_to_Two-Year_High_US_Retail_Sales_Today_body_x0000_i1027.png, Traders Increase Bullish Kiwi Bets to Two-Year High; US Retail Sales Today

Taking a look at European credit, slightly weak bonds have emerged, though peripheral countries remain subdued. The Italian 2-year note yield has decreased to 2.019% (-0.4-bps) while the Spanish 2-year note yield has increased to 1.692% (+0.8-bps). Conversely, the Italian 10-year note yield has increased to 4.533% (+0.9-bps) while the Spanish 10-year note yield has decreased to 4.438% (-1.4-bps); higher yields imply lower prices.

Read more: Aussie Firms on Election Outcome – Rally Unjustified Given Economic Pitfalls

ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION

Traders_Increase_Bullish_Kiwi_Bets_to_Two-Year_High_US_Retail_Sales_Today_body_Picture_1.png, Traders Increase Bullish Kiwi Bets to Two-Year High; US Retail Sales Today

See the DailyFX Economic Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators. Want the forecasts to appear right on your charts? Download the DailyFX News App.

TECHNICAL ANALYSIS – CHART OF THE DAY

NZDUSD Daily Chart: January 2013 to Present

Traders_Increase_Bullish_Kiwi_Bets_to_Two-Year_High_US_Retail_Sales_Today_body_x0000_i1029.png, Traders Increase Bullish Kiwi Bets to Two-Year High; US Retail Sales Today

Charts Created using Marketscope – prepared by Christopher Vecchio

- The NZDUSD is on the verge of initiating a Bullish Double Bottom pattern on a weekly close above $0.8160/65.

- The 480-pip range has guided price between 0.7680/85 and 0.8160/65 since mid-May.

- The measured move calls for a rally into 0.8640/45, just short of the April swing high 0.8677; it would be logical to take profit near such a significant level of resistance (yearly high).

- On a bullish break, 0.8360 (mid-April support) is an interim target.

- Fundamentally, the US Advance Retail Sales (AUG) report poses a threat; a beat of the +0.4% m/m print could provoke a near-term setback in price; the pair is overbought on the H1 and H4 timeframes per RSI (21) and Slow Stochastics (5,3,3).

- A weak US sales report could provoke a break higher; confirmed above 0.8200.

- Overall, looking to buy dips in NZDUSD.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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

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