NZD/USD Recovers Higher Threatening Channel Resistance

NZD/USD extended higher in a recovery from last week’s lows and is seen approaching resistance from a declining channel. The pair was boosted higher within the current rally as inflation data and Global Dairy Trade (GDT) numbers out of New Zealand came in better than expected, and has been able to sustain gains despite the Greenback turning higher after US Data.

Quarterly CPI was reported to rise 0.2% in the quarter to September, beating analyst expectations for an unchanged reading and a rise of 0.4% in the quarter to June. On an annual basis, CPI rose 0.2% compared to 0.4% in both June and March quarters. The figure beat the analyst expectation for a rise of 0.1%.

RBNZ’s Assistant Governor John McDermot had stated in a speech last week that the inflation figures were expected to come in lower at this reading, with an expectation for the December figures to pick up towards the lower bound of the central bank’s target of 1%. While the figures today beat expectations, they remain lower as compared to the central bank’s inflation targets. It is unlikely that the numbers will have an impact on the bank’s stance on monetary policy as they will be focused on the December figures.

The pickup in NZ inflation in the quarter to December is expected as oil prices have recovered. With Petrol comprising of 5% of CPI, the decline in oil prices in the quarter to September has weighed heavily on inflation. Offsetting some of the declines in Petrol were higher housing-related prices, a sector that McDermot expects to once again boost inflation in December.

Inflation data was reported out of the United States today. The US consumer price index was reported to rise 1.5% on annual basis, in line with expectations and up from the prior reading of 1.1%. For the month of September, CPI rose 0.3% as expected, and up from a reading of 0.2% in the prior month. The core figures fell short of expectations with the monthly data rising 0.1% against an expected rise of 0.2% and the annual figure rising 2.2% against an expected 2.3% rise. The US Dollar was seen moving higher following the data.

The US Dollar index (DXY) posted a low in European trading and was seen moving higher ahead of the US CPI data release. The release caused an initial move lower but a prompt reversal took the index towards the daily open, where a consolidation is seen taking place.

The Global Dairy Trade auction recorded an increase of 1.4% following a decline of 3.0% in the prior reading. NZD/USD was seen edging lower from the upper bound of a declining channel ahead of the data but pushed higher on the positive release, attempting to scale resistance.

NZD/USD was last seen trading at 0.7211 for a gain of 1.1% on the day. The Kiwi Dollar has outperformed all of its counterparts among the majors, while the Euro is seen lagging today.

The current recovery in NZD/USD follows a bounce higher from a rising channel that connects January lows with late May lows. The channel is critical for a medium-term bias as the pair remains in a broader uptrend, despite declines seen since the September high.

A declining channel that connects September highs with the October 4 highs has held the pair lower, with the bounce last week coming from a support confluence. The lower bound of the declining channel from September and the lower bound of the rising channel from January had created a confluence of support. Momentum is seen increasing in the rally today, as the pair is seen testing the upper bound of the channel. In the event of a bullish break, further resistance in the pair is seen at 0.7245, the level had triggered a bounce higher in the early stages of the decline from September. Some confluence is seen near the level as the 61.8% Fibonacci level measured from September 22 highs to last week’s lows is seen at 0.7258. Further resistance is seen at the 0.7300 handle, the level references the high posted during the UK vote and carries confluence with the 76.4% Fibonacci level. The handle was also respected in June and July, triggering a turn lower on several tests of the level.

NZD/USD Daily Chart

NZDUSD Daily Oct 17

Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.