NZD/USD – Bears Attracted by Spoilt Milk

Last week saw Kiwi dollar falling from a high of 0.81 back into the multi-year support channel, which has been keeping the multi-year uptrend going. Prices were already looking highly bearish from the 0.81 rejection, as evident by the post US NFP reaction. With a weaker than expected NFP print last Friday, USD weakened significantly as speculation of delayed QE tapering increased, sending NZD/USD higher. However, the effect wasn’t long-lasting, as NZD/USD continued to weaken, closing close to the weekly low when all is said and done (as a side note, it seems that market is more concerned with the absolute gain in NFP rather than the change in unemployment rate). To fully appreciate the degree of bearishness, we can simply look at the Hourly Chart below which showed the long tail candle which has broken away from the descending Channel unable to even test 0.794 – the soft support formed last Thursday.

Kiwi is certainly not getting any joy early week, with prices falling almost 100 pips within the first few hours of trade, the majority of which came from an opening gap due to China’s over-the-weekend ban of dairy products from New Zealand and Australia. This news impacted Kiwi more so than Aussie as dairy exports to China represent account for a much larger chunk of GDP for New Zealand. This is expected to have such a huge impact that the Minister of  Primary Industries had to make an official announcement this morning just to clarify matters. It is clear that New Zealand’s economy is rattled and everybody with NZD exposure is getting nervous.

Hourly Chart

From a technical perspective, price is currently trading close to Channel Bottom. Despite Stochastic readings entering deep into the Oversold region, bearish momentum does not appear to have stalled, with current prices actually below the soft interim support of 0.775. Nonetheless, it may be unlikely that price will be able to break Channel Bottom for further bearish acceleration. A more plausible outcome may see bears straddling Channel Bottom to head lower, given current reduced bearish momentum. A rebound towards Channel Top is possible, but should only be considered should Stoch readings clear the 20.0 mark and preferably above the 30.0+ levels where small stoch peaks have been seen last week.

Weekly Chart

Weekly Chart sees price punching through the rising Channel entirely. It is important to note that this chart is based on New York time, and as such registers this morning’s Asian sell-off as part of last week (as it is Sunday in New York). Whether we can consider this as a Channel Breakout is debatable, hence we should wait for this week candle (starting from 12:00pm SGT Monday) and see if there is any bearish continuation, and preferably below the 2013 swing low of 0.767 for a confirmation of the Channel Breakout. Stochastic suggest that such a scenario is plausible with readings starting to pull back.

Fundamentally, with NZ Unemployment Rate coming up this week, we could be potentially seeing stronger bearish winds blowing should unemployment situation worsen. If the unemployment numbers increases in Q2, expect current bearish sentiment (both from technicals and fundamentals) to push NZD/USD lower on overreaction towards the downside.

More Links:
Week in FX Europe – BoE and ECB’s Forward Guidance; What Guidance?
Week in FX Americas – NFP Hurts Yields, But Aids EM Currencies
Week in FX Asia – BoJ Facing Strong Yen and Sales Tax Hurdles

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