NZD/USD – Treasury Bullishness not Translating to Higher Kiwi

In the Monthly Economic Indicators report released this morning, the New Zealand Treasury said that NZ has experienced strong growth in Q4 2012 – driven by housing-related activities across the country. It also said that the markets have priced in almost a 25-bps hike in the reference rate over 2013. Global outlook has also improved slightly in developed countries, with currency fluctuations expected to continue. Despite the upbeat tone of the Treasury, which was fairly similar to RBNZ minutes back in Jan 2013 (not to be confused with the Feb Wheeler’s dovish statements), NZD/USD traded lower, pushing Kiwi below Jan lows to open up fresh new lows for 2013.

The decline is attributed to 2 economic factors: 1) US Sequester Cuts and 2) Weak Chinese Non-Manufacturing PMI.

Obama signed the sequesters into effect over the weekend, and push USD higher as traders flee from high beta equities to seek safer havens in the form of lower beta currencies such as USD and JPY. On the Chinese front, the weaker Service PMI figures affirms the slow down experienced in the Manufacturing PMI released last week – China’s growth is slowing down, which can only mean bad news for exporting countries such as Australia and New Zealand. The strengthening of USD, and the weakening of NZD resulted in a double whammy for Kiwi which allowed price to open up new lows despite whatever the Treasury has been saying.

Daily Chart

Daily chart has a series of bearish indicators since 2 weeks ago. After the formation of the bearish Kumo Twist, price managed to pierce through the Kumo with the rebound kept at bay by the same Kum0. Following that, price has formed a 3-black-crows pattern with the 3rd crow breaking the swing low back 4 candles before, underlining the strong overall bearish intent. Even though Stochastic readings are currently within Oversold region, readings has rebuffed an attempt to push higher with both Stoch and Signal line looking to go lower with the distance between them widening once more.

Hourly Chart

Hourly Chart show Asian opening session breaking below the support on 27th and 28th Feb. Though bearish bias remains, Stochastic is less bearish as compared to the Daily Chart, with current readings accurately pointing out stalling bearish momentum the past 2 times within the last week. Nonetheless, Ichimoku has been proven useful in the hourly chart with Kumo providing overhead resistance successfully twice in the last 2 trading days.

Fundamentally, it is important to note that the sequesters is not implemented immediately, with cuts to happen from now till July as different areas of budget expires. In the meantime, Obama and Democrats still have time and space to negotiate a “grand bargain” with the Republicans to ensure that the major part of the sequesters do not hurt economy too badly. On China, it is a well known fact that Chinese economy is slowing down, and though growth rates are obviously lower now, we are still looking at “growth” rather than “decline”. As such, RBNZ Governor Wheeler and Treasury’s view of a more optimistic global outlook isn’t really that far off, and we could still potentially see NZD rebounding higher eventually.

More Links:
AUD/USD – Trying to Stay Above Key Support at 1.02
EUR / USD – Relying on the Key Level of 1.30

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