Buying Opportunities – NZD/USD – Forex Trading Tips

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Originally updated: 08:00

Trading Bias: Bearish USD

Currency Pair: Long NZD/USD

In today’s trading session we will be focusing on buying opportunities on NZD/USD currency pair.

Current Sentiment:

Wednesday was a busy day for data. Late in the Asian session we saw Chinese Industrial production come out slightly worse than expected at 5.9% where it was estimated at 6.1%. AUD saw a small dip down but was unfazed and rallied on the day 200 pips – largely on the back of USD weakness.

French GDP came in better than expected while the German figure arrived worse. The euro was relatively unmoved by this data. Later, Eurozone GDP came in slightly worse and some growth forecasts were downgraded which saw EURUSD take a small hit, dropping nearly 50 pips.

The main events were from the UK where the Claimant Count Change came in slightly worse but the Average Earnings Index beat expectations and this gained the market’s attention; Cable rallied 80 pips ahead of the Quarterly Inflation Report. The QIR cut growth forecasts for the UK over the next three years and cautiously kept its stance to begin hiking rates approximately this time next year. The net effect of the report was bearish for GBP and we saw it drop 100 pips as soon as the market had assimilated it.

In the North American session US Retail Sales missed estimates and this caused aggressive selling in the currency. The USD is extremely sensitive to US data at the moment. EURUSD was up 180 pips on the day. We expect the weak USD sentiment today to continue into PPI and this is the basis for our trade call to sell USD against currencies with bullish sentiment.

Overnight New Zealand Retail Sales beat estimates by a wide margin and this has given Kiwi some short term bullish sentiment. Despite the risk of rate cut in the next three months, we believe the NZD will remain relatively bid on the back of this release plus following on from the RBNZ Financial Stability Report which was not as negative as the market had feared.

Fundamentals:

The USD remains the strongest currency in the longer term, but the medium-term direction depends on data. Yesterday’s Retail Sales figures have prompted a return to USD bearish sentiment.

The EUR remains fundamentally weak and the Greek debt issue is ongoing. The Euro can easily get a boost on any new USD weakness, which was seen yesterday. As speculation mounts of a Greek debt default we can expect Euro to be pressured against fundamentally bullish currencies. Any major sell off in German bunds may precipitate euro strength.

GBP has regained its place as one of the strongest currencies now that the Conservative government remains in power; a degree of uncertainty has been erased. The Inflation Report has dampened bullish sentiment on this currency.

AUD is relatively neutral now there is no speculation of rate cuts in the near term. China’s rate cut shows that the PBOC are acknowledging the slowdown in the economy, which has the potential to weigh on AUD if demand for commodities decrease further. The recent move higher in the iron ore price is positive for the Aussie dollar in the near term. AUD also enjoys a positive interest differential against all majors except NZD.

NZD has a greater chance of easing monetary policy since the poor employment figures were released. We will watch data to indicate the chance of a cut in the near-term. The OIS is now pricing a 46% chance of a June 10 cut. NAB says this is too soon. Yesterday’s Retail Sales may translate into some short-term moves higher in NZD pairs.

CAD remains on the weaker side of neutral until we see more data or direction from the BOC. CAD will take most of its direction from any significant changes in the price of West Texas Intermediate crude oil.

JPY remains weak but the market will likely need a new bout of easing to sustain another fall. In the meantime, the sentiment on the JPY can turn bullish very quickly if there is uncertainty in the markets.

CHF is fundamentally a weaker currency given the SNB’s negative interest rates, however it is highly susceptible to volatility due to SNB potentially intervening to weaken the currency as it tends to strengthen on safe-haven demand. CHF often will take direction from the EUR with which its correlation over the last 50 trading days is 74%.

Technicals:

We look to buy NZD/USD between 0.7500 and 0.7530.

Other Market Moving News:

The calendar is light until the US session where we have PPI. This will move the market if it deviates.

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