In just a week of November, the NZD/USD pair was able to overcome almost 300 points, updating multi-month highs and getting close to the 68th figure. Despite such a sharp and very large-scale growth, the New Zealand dollar continues to show character – especially against the backdrop of the weakening of its American namesake. Today’s meeting of the RBNZ can strengthen the northern trend, but on one condition – if only the members of the central bank appreciate the dynamics of growth of key macroeconomic indicators of the country. In general, the New Zealand central bank currently has every reason to tighten its rhetoric – especially after the release of today’s data on the labor market, which, in fact, served as another impetus to the growth of prices.
New Zealand’s labor market did surprise: the unemployment rate unexpectedly dropped to a ten-year low of 3.9% – the last time at such low level was in August 2008. The number of employed increased by 1.1% on a quarterly basis (0.5% forecast) and 2.8% on an annual basis (2% forecast). The share of the economically active population rose to 71.1 per cent (two year high) and the level of under-utilization of the labour force fell to 11.3 percent. Such impressive figures provoked strong volatility on the NZD/USD pair – especially after the announcement of the results of the elections to the US Congress, when the US currency weakened throughout the market.
But in this case, the decline of the greenback plays an optional (albeit not important) role. The fact is that the bulls of the NZD/USD pair have quite reasonable hopes for tightening the rhetoric of the New Zealand central bank, whose members will hold their next meeting today. Here it is worth recalling that in August, the head of the RBNZ surprised and greatly disappointed traders with his “dovish” rhetoric. Then he said that the issue of raising the rate will not be considered before the second half of 2020, while criticizing the growth rate of the economy. And the most unpleasant thing is that OPP has made it possible to soften the conditions of monetary policy if this trend continues. This turn of the plot was a complete surprise for investors who were confident that the next step of the regulator will be a rate hike in the second half of 2019. That is why at the end of the summer the “kiwi” collapsed to two-year lows, falling in tandem with the dollar to the 65th figure.
Now the situation has changed dramatically – and not only in the field of employment. Credit card spending, the service sector, as well as inflation indicators show positive dynamics. In particular, consumer prices in the country rose by 1.9% (year-on-year) in the third quarter after rising by 1.5% in the second quarter. Most experts expected a more modest result at 1.7%. This suggests that one of the key indicators for the RBNZ is gradually approaching its target level.
All this suggests that the New Zealand regulator may indeed tighten its position somewhat – at least not to mention a likely rate cut. The central bank is unlikely to revise the approximate timing of the rate hike and certainly will not take a “hawk” position, but to show some optimism in their estimates, it may well. This will allow the bulls of the NZD/USD to extend its success with the first price objective 0,6870. Otherwise, if the regulator maintains a cautious position, the price may fall to the low of the day – 0.6710.
Also, we must not forget that Donald Trump will have a press conference tonight, who will evaluate the results of the elections to Congress. His rhetoric can affect the position of the US currency, although it is difficult to predict the exact key because of Trump’s unpredictability. If traders see signs of further unbalancing of the political system in the US, the greenback will again be under pressure, pushing the NZD/USD pair upward accordingly.
From a technical standpoint, the NZD/USD pair is in a strong upward trend. This is confirmed by the main trend indicators – Ichimoku Kinko Hyo and Bollinger Bands. Thus, the Ichimoku Kinko Hyo indicator on the daily chart has formed a “line parade” signal, and the Bollinger Bands is in the extended channel, while the price is above its upper line. The level of the nearest correction is 0.6740, which corresponds to the upper line of the Bollinger Bands indicator Ichimoku Kinko Hyo, over which the price is now.
The next target of the upward movement is the upper line of the Bollinger Bands on the weekly chart, which corresponds to the price of 0.6870. If today, the Reserve Bank of New Zealand show optimism and a positive assessment of trends in the country’s economy, this target can be achieved in the near future.
The material has been provided by InstaForex Company – www.instaforex.com