NZD/USD Extends Gains After Regaining 200 DMA

NZD/USD is on track to post a third consecutive day of gains in a recovery from important support at 0.6991. The Kiwi Dollar has posted the largest gains among the majors today and for the week thus far. NZD/USD scaled back above the 200-period moving average on Monday and is seen scaling above the next notable level of resistance found at 0.7110.

Support at 0.6991 has held the pair higher since mid-June and after some consolidation near the level last week, the pair is making gains this week. Yesterday’s rally sliced through support at 0.7053 reflecting October lows and today, a level at 0.7110 has been breached. The level has been respected since late July as both support and resistance.

The RBNZ released their financial stability report today. Reserve Bank Governor Graeme Wheeler indicated that the financial system is sound but that there remains risks in the dairy sector and housing markets. Recent dairy auction prices have shown improvements but farmers have incurred debts from earlier this year to remain afloat, presenting some risk. Macro-prudential measure implemented ahead of the recent RBNZ rate cuts have cooled the housing markets somewhat, but house price inflation continues to be a concern. There were earlier talks of implement Debt to Income (DTI) measure, a tool that the United Kingdom has been using, and Wheeler has revisited the option but has not made a decision to implement it as of yet. There was little mention of the earthquake on November 14 as damages and costs are still being assessed. The RBNZ has recently completed a well communicated easing cycle and is not expected to make further adjustments to monetary policy. Governor Wheeler will follow up with a testimony in front of the Parliament Select Committee at 19:10 EST today.

Out of the United States, stronger data failed to trigger a rally in the Greenback. The second estimate of third-quarter GDP was reported to rise 3.2% ahead of the expected rise of 3.0% and the first estimate for a rise of 2.9%. The Conference Board consumer confidence printed at the highest level since mid-2007. The figure rebounded to 107.1 in November against the analyst expected 101.3 and versus an upwardly revised 100.8 in October.

While NZD/USD has been rallying with momentum, the pair continues to carry a bearish bias following a technical break earlier this month. The pair broke below a rising channel that has encompassed price action since the start of the year. While above 0.7110 there is potential for a retest of the lower channel line, currently seen around that 0.7200 handle. The 0.7110 level is seen as pivotal as a failure to sustain the level could signal a turn in the broader downtrend. Support for the pair is seen at 0.7053 reflecting October lows, with the 200 DMA in close vicinity to create a confluence. The moving average currently resides at 0.7038.

NZD/USD Daily Chart

NZDUSD Daily Nov 29

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.