NZD/USD – Yet another Quarter of Job Cuts as RBNZ rosy picture not visible

After a disappointing showing back in Q3 2012, it appears that we’re getting from bad to worse. New Zealand Employment change for Q4 2012 fell 1.0% Q/Q, increasing the rate of decline from Q3’s -0.4%. Y/Y the number of employed New Zealanders fell by 1.4%, which is dismal considering that 2012 was a good year for US and China, while Euro-Zone was able to stabilize itself for the better. Unemployment rate dropped to 6.9% from the previous 7.3% high, but a large part is due to to huge fall in participation rate which went down from 68.4% to 67.2%.

To say the market is surprise is an understatement. With Reserve Bank of New Zealand Governor Wheeler bigging up the economy in his recent official RBNZ’s statement, market was looking forward to stronger Kiwi economic fundamentals, not weaker. It appears that Wheeler’s assertion of growth in 2013 is not corroborated with evidence, but rather optimism. As such, market players believe that the hawkish RBNZ stance may be more shaky moving forward, or perhaps even change their tune to match that of its neighbor RBA.

Hourly Chart

The huge surprise to the market is apparent in price, with the hourly candle longer than the entire day’s range for the past week. The follow through is even more impressive, as price continued strongly below 0.84, looking to test 0.835. However Stochastic indicator suggest that price could find a bottom soon, with both Stoch and Signal line converging in the Oversold region. Also, bearish momentum appears to have wane a bit, with one green candle in the mix and past few candle bodies failing to match the length of their predecessor.

Daily Chart

0.835’s importance as a support can be seen from here, agreeing with what the hourly chart suggest. However, do not expect 0.835 to simply hold on if bearish momentum continues as current consolidation range stretches all the way to 0.833 or even 0.830 (if you are generous as price will trade below the Kumo). There are further strong supports below 0.835, in the form of the rising trendline from Nov ’12 lows, and also the rising Kumo. Current Kumo appears unfazed – still pointing up – despite the longest bearish candle on chart, suggesting that longer term bullish momentum is still in force.

The bullishness can easily change though, as current Kumo does not have a thick body, making any potential decline able to pierce through it to give us a bearish bias. From price action alone, a break below 0.835 opens up 0.820 support and may change the tune from a bullish one to a sideways one, with 0.845 representing the horizontal channel top.

Fundamentally, traders will be watching out for any 180° change from RBNZ for further direction. Should RBNZ remain hawkish, NZD will remain supported though doubts will continue to remain on the surety of Wheeler’s outlook. Changing to a dovish one will result in a “all hell break loose” mode that will catalyze the selling back to 0.82 and perhaps even propel it lower beyond  to establish a firm bearish reversal.

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