Tuesday’s inflation update out of New Zealand came in largely as expected, at 1.9% year-on-year over the third quarter, and saw a small rally in NZDUSD, which soon faded. Volatile items such as food and energy gave the Consumers Price Index a temporary boost. Most analysts expect inflation to trend back down this quarter, perhaps back to 1.00%. Hence, the Reserve Bank of New Zealand will be holding its policy rate steady at 1.75% for the foreseeable future.
Meanwhile, traders await the end of drawn-out negotiations around the formation of a new government, post the September 23 election. The New Zealand First party will be the king (or queen) maker, returning to power the current prime minister, Bill English, and his centre-right National Party or handing the reins to 37-year-old newcomer Jacinda Ardern and a centre-left Labour Party/Greens coalition.
NZDUSD will rally 80-100 pips on a centre-right government and decline a similar amount in the event of a centre-left coalition. Bet on the former.
Management and risk description
From an Elliott Wave perspective the Kiwi has completed a 3-wave corrective structure from the late July peak of 0.7565 to this month’s 0.7050 low. There is also a (potential) developing falling wedge pattern on display (refer daily chart below).
Also, from a classical charting stand point, since September 26 the Kiwi displays a (potential) developing inverse head & shoulders reversal pattern (refer hourly chart below).
Support now lies around the mid 0.7100s, with a (sustained) break above 0.7200 resistance, establishing upside projections towards 0.7300 and 0.7350/0.7365 over the coming days.
Entry: Today Kiwi is seen as a buy at market (0.7175).
Stop: Just under 0.7145, initially.
Target: 50% at 0.7297 and 50% at 0.7357.
Time horizon: Allow several days at least for targets to be met.
NZDUSD hourly chart (click to expand)
NZDUSD daily chart (click to expand)
NZDUSD weekly chart (click to expand)
Source: ThomsonReuters. Create your own charts with SaxoTrader; click here to learn more
— Edited by Susan McDonald
Non-independent investment research disclaimer applies. Read more
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