NZD/USD: Dismal Chinese Data Trumps Rate Hike Talk

Busy busy day for NZD/USD during early Asian trade today. The Kiwi traded lower overnight due to the strengthening of USD led by US stocks, but started to recover when the New Zealand exchange opened, buoyed slightly due to the gains seen in New Zealand stocks. Price received a further boost towards New Zealand midday when Finance Minister English commented that Central Bank rates will eventually rise, prompting speculators to believe that such a move could happen within the near future. NZD/USD rallied strongly following the comment, pushing all the way up to 0.787 before coming back lower.

If bulls were hoping that English’s comments would help to extend current short-term bullish run (see chart below), they will be utterly disappointed as Chinese data totally spoilt the party, with June Exports falling hard at -3.1% Y/Y versus an anticipated 3.7%. Imports have also fallen, coming in at -0.7% versus an expected 6.0%. Strangely, despite the huge disappointment, trade balance for China actually grew from $20.42B USD previous month to $27.12B USD. This is highly unusual, but considering China’s data integrity track record, do not be surprised if there are some padding up here and there. Nonetheless, even if we were to accept that trade balance actually grew so significantly despite the larger fall in exports compared to imports, the reported figure is still lower than the expected $27.8B, based on healthy growth estimates.

Hourly Chart
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A worsening Chinese economy is definitely going to impact the Oceania region, as China is the main purchaser of their exports. Hence it was not surprising to see NZD trading lower immediately following the news. From a technical perspective, price is currently pushing below the rising trendline. The rally due to rate hike speculation only served to affirm that technical bears are in control, with prices unable to climb back up above the trendline. With current price pushed down from the trendline, the bearish rejection from the rising trendline is almost complete – simply lacking a break of the 0.783 support to confirm a strong bearish breakout that opens up 0.773 and potentially 0.770 once again.

However, should 0.783 holds, the possibility for a move back towards rising trendline will increase. Stochastic readings are currently suggesting that a bullish cycle will occur soon. That does not mean that price will simply reclaim territory above the trendline, but nonetheless opens up the scenario for price to straddle the trendline and potentially trade higher.

Weekly Chart
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Weekly Chart is in favor bulls as price has now managed to breached back within the rising Channel support zone. This eliminates any immediate bearish pressure, and allows short-term bulls to reign for now. Given that Stoch readings on weekly chart also shows signs of Oversold, and is also threatening to push out of 20.0 level to initiate a full bull cycle signal.

With RBNZ Cash Rate announcement coming on 25th Jul, even if Governor Wheeler adopts the hawkish stance of Finance Minister English, we will not hear of it after 2 weeks. Looking at how market reacted to English, it is clear that overall sentiment is one of disbelief, and it is unlikely that speculators will wish to bet that RBNZ will increase rate in the near future. Credit Suisse Overnight Index Swap showed that possibility for rate hike remained at 0% after the announcement, affirming our assertion. As such, price will still be more influenced by techincals and USD direction moving forward, which is currently favoring bulls due to the failure of bears to extend the Channel breakout.

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