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New Zealand Dollar: Taking a Break, Then a KitKat? - June 29, 2010

Hiyo FX fans! On this post is an update of the NZDUSD pair which I posted on June 22 (kindly click here to see my previous entry). Now, perhaps you are asking what’s up with my title. Well, it’s exactly what it is cause if you check out the 4-hour canvas of the pair, it has since consolidated within a rectangle or a box after breaking out from a double bottom and a symmetrical triangle. In a consolidation phase, especially when it is coming off an uptrend, traders are silently accumulating the currently. Hence, whenever a security or an asset is ranging, it can be used as a first indication of a likely surge in volatility sooner or later. If the pair breaches the range’s resistance around 0.7150, it could lunge itself past the double bottom’s minimum upside target towards 0.7275, where the KitKat is, figuratively. On the low side, a break below the range’s support could push it lower back to the neckline of the double bottom. Though as mentioned, since the pair is on an uptrend at least in this time frame, a move north is more likely.

No major economic updates are due from New Zealand for the rest of the week which means that the Kiwi could continue ranging until the end of the week. The building approvals and retail sales reports from Australia, however, could cause the NZD to sway. The Kiwi and the Aussie are highly correlated given since the two countries are merely neighbors with more or less the same industries. Both currencies also have the highest interest rates with the former having 2.75% and the latter with 4.50%, making the two more attractive than their peers especially when there is a lot of risk taking in the market.

In any case, Australia’s building approvals is expected to come in at 0.0% in May after dipping sharply by 14.8% during the other month. Despite the RBA’s previous interest rate hikes and April’s dip, the account is still projected to grow by 32.5% from a year earlier which is way better than the 21.3% that was printed the other month. Moreover, the expected 0.3% rise in Australian retail sales for the same month after already gaining by 0.6% during the month prior could support the Aussie as well as its cousin, the NZD, at least in the short term. Better than anticipated results, of course, could push the higher yielding currencies higher.

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Disclosure: No positions