Kiwi double tops ahead of risk event

Kiwi double tops ahead of risk event

By Andrew May (Sales Trader, CMC Markets New Zealand)

The NZD has enjoyed recouping lost ground against all major peers this week after markets were rattled by earthquakes over the last five days. Widening of spreads and profit taking saw off the tremors markets initially anticipated. In the end investors picked up the pieces and rallied the embattled Kiwi cross pairs back to early July supports.

In the face of waning USD strength, the NZDUSD opens today slightly under US 0.80c, a firm resistance level to which it has not deviated more than 10pts either side of 0.7980 all week. Therein lies the double top as we approach an event risk that begins with our trade balance results late this morning. Anything less than a $100mio surplus will begin tightening the tourniquet above the US 0.80c mark immediately.

Following local data, we’ll have another HSBC flash PMI test of how fast the Chinese economy is slowing. Australian CPI data will provide further clues to the RBA’s intention of further easing with a below par figure only adding weight to a falling Kiwi.

We finish the cavalcade of southern economic data with the Reserve Bank of New Zealand’s (RBNZ) official cash rate decision tomorrow. No change of 2.5% is widely expected but expect persistently bias and dovish comments regarding the high kiwi dollar from RBNZ governor Graeme Wheeler.

The Kiwi has found renewed vigour this week as markets welcome back a tempestuous appetite for resources. In particular, gold and oil have flourished amidst US markets swimming in record highs doused in an overzealous Q2 earnings season. However given the general USD strengthening environment now prevalent in global foreign exchange markets, any short-term NZD gains above US 0.80c are expected to be relatively short-lived.

Belligerently the longer the Kiwi dollar trades the US 77-80c range the more likelihood there could be a significant move to test late May supports of 0.8090.
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