Key Points:
- Buying pressure has been notable but may subside over the coming days.
- Mixed fundamental forecast should see some of last week’s rally eroded.
- Near-term losses may not preclude further gains in the medium to long-term.
The Kiwi Dollar had an excellent past week of gains but the longevity of its rally is now coming into question. Specifically, a mixed technical bias and some fundamental uncertainty could prevent the pair from pushing higher over the coming sessions. Indeed, recent upsides already seem to have been pushing the envelope so to speak which might mean a correction or moderation is now in order. Due to this, it may be worth taking a closer look at what caused last week’s rally and how this ties in with the fundamental and technical biases moving forward.
Starting with last week’s performance, the Kiwi Dollar was in the market’s good graces over the past 7 days which resulted in the pair making its way all the way back to the 0.7208 handle by the end of Friday. The rather consistent buying pressure was largely attributable to the disappointing US data sprinkled throughout the week – including both a -0.2% contraction in US Factory Orders and a weaker than expected Unemployment Claims result of 245K. However, one session proved to be particularly bullish as a result of the sixth consecutive uptick in the GDT Price Index (this time of around 0.6%) which saw the NZD claim nearly 50 pips on Tuesday.
Going forward, the question will be whether or not we can expect to see similarly supportive data or if the economic news is going to slap the pair lower. Well, Wednesday will see both the quarterly and yearly NZ GDP figures posted which could provide the necessary buoyancy if they come in on or above targets. The two prints are forecasted at around 0.7% and 2.7% respectively and, given the general recovery of the nation’s dairy industry and the increased tourist arrivals over the past year, we are very likely to see these estimates achieved.
On the face of it, the likelihood of us seeing strong GDP numbers should mean our default bias is going to be bullish. Nevertheless, any positive sentiment could be drowned out by the deluge of US Retail Sales data and the Fed’s interest rate decision – both of which are due out just prior to the GDP numbers. Due to this, we can’t quite put forward an argument for further gains purely on fundamental grounds and we may have to take a look at the technicals to get a clearer picture.
When delving into the technical side of things, it becomes clear that the Kiwi Dollar remains broadly bullish but we might begin to see momentum slow as it is now challenging a vital resistance level. Specifically, whilst the EMA bias is highly bullish, the Parabolic SAR remains firmly below price action, and the ADX is signalling that a strong trend is in play, the pair is now highly overbought. Indeed, both stochastics and RSI are signalling that it may be time for the bulls to take a break which might see the historical zone of resistance around the 0.7232 remain intact.
Ultimately, the combination of the mixed technical and fundamental outlooks means that we are likely to see price action moderate this week – potentially leading the NZD to retreat to the 0.7129 mark. However, this may not be the end of the overall uptrend and, instead,it might simply be a bit of a cooling-off period prior to the bulls making another attempt at surging higher. As a result of this, cautious optimism may be well founded in the long-run but the bears may be in the driving seat for the next week at least.