NZD/USD: Heading Towards 0.81 On Manufacturing Growth

And the good news keep coming in! Hot on the heels of yesterday’s stronger than expected Retail Sales numbers, we have NZ Manufacturing Index coming in at 59.5, the strongest print in more than 5 years. Similar to Retail Sales numbers whose previous number received an upgrade, last month’s manufacturing number has also been revised higher from 54.7 to 55.2. This also marks the 8th straight month where growth has been sighted in the manufacturing sector, suggesting that NZ economy is booming. To top it up even further, we have ANZ Job Advertisement (Jul) growing at 3.5% M/M, higher than the 0.3% of June. Consumer Confidence is also higher at 123.0, growing 2.7% and reversing part of the drop in previous month. All these point to a robust NZ economy moving forward, sending Kiwi Dollar to fresh weekly high.

However, if we take a step back and re-evaluate the numbers, it is difficult to see why today’s economic numbers can drive NZD/USD higher by around 50 pips. Manufacturing Sector has never been the main driver of NZ’s economy, while Consumer Confidence has always remained high for the past few years. A growth in job advertisement is certainly good especially given that unemployment rate has just risen in the previous quarter, but all in all NZ isn’t really plagued by high unemployment rates (relatively), and employment market has been steadily improving over the years with actual number of people getting employed increasing while unemployment rate has fallen from above 7% to under 7%. Hence today’s data doesn’t really change the outlook of NZ economy, with same risks remaining unaddressed – e.g. China slowdown and dry weather affecting food production.

Hourly Chart
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Not that it matters to NZD bulls though. It should be noted that prices were already trading above 0.80 significant resistance before US session opened yesterday. Prices continued to push higher during the rest of the US session, but a technical rebound from 0.804 (swing high of 13th Aug and 9th Aug) send price back tow the 0.802 soft support and more importantly confluence with the rising trendline. Hence it is clear that bullish sentiment was already strong before, with bulls using today’s stronger numbers as an excuse to buy into.

From a technical perspective, trading above Monday’s swing high has allowed early week’s decline to be negated beyond any doubt. However, stochastic readings currently are pointing lower after hitting Overbought region, suggesting that a bearish cycle is currently underway. Nonetheless, given current strong bullish sentiment, it is likely that prices will find support along the rising trendline once again. If prices manage to stay above the Monday swing high levels for a few hours more, it is even more likely that prices will be able to push higher as the rising trendline would be higher than the previous swing high, potentially setting up a stronger movement for price to move towards 0.81 during US session.

Weekly Chart
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The importance of 0.81 can be seen from the weekly chart. The previous failure to break 0.81 resulted in a quick movement back to below the rising multi-year support channel, and the same could happen again if prices failed to clear 0.81 by the end of the week especially given current strong bullish sentiment. Currently price is above the rising Channel, with yesterday’s and today’s rally allowing Stochastic curve to avert crossing the Signal line to form an interim trough. If we are able to close above 0.81 by the end of tomorrow’s trade, we could potentially see price moving up even more aggressively as the bullish Channel breakout would be confirmed, opening up the 2013 highs of 0.8675 as bullish target, with 0.84 as interim resistance.

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