The New Zealand dollar has had a contentious past 24 hours of trading, with two massive drops. The first still remains a mystery to many, but with light liquidity many are speculating that the Reserve Bank of New Zealand (RBNZ) intervened in the markets and pushed the NZD down against the USD. This might seem a little strange, but no other currency moved during that period and as a result, it was either the RBNZ or some other major player, but we will have to wait a few months for confirmation if it was the RBNZ.
The second thing was the recent trade balance data, which was expected to be negative overall. But, trade balance data is cyclical in nature, and a fall was expected. However, it certainly was worse than the expected -475M, as it came in at -692M for the previous month. This is the norm really as can be seen from the chart below, and we should see some bottoming out of the negative trade balance data over the course of the new two months, as we shift back into summer.
Weak commodity prices are also hampering the trade balance data, and we may see a less than optimistic RBNZ when it comes to future interest rates. In fact, it’s likely we will see a pause for some time yet.
At present on the NZDUSD chart, it’s a solid breakdown through the channel and for a while I expected it to be minor. However, with the raft of data and action in the market this down trend is looking likely to stay.
Support levels can be found at 0.8316, 0.8244 and 0.8190; all of these support levels are likely to be tested in the coming week if this strong downward trend continues. When it comes to resistance, I would look for previous levels of support, or more importantly, the trend line which will act as dynamic resistance for any pushes higher.
With a strong trend line downwards and weak data, coupled with a strong USD. We could see further falls or the NZDUSD, the question is how far. I’m currently looking around at around the 0.82-0.81 cent band which tends to find a lot of support and liquidity in the market. However, there is a strong down trend and a crack through the 80 cent mark could certainly be a possibility in the future.
The question is how far will it fall, and over the next few weeks we may indeed find out.