The ‘rock star’ economy of New Zealand is no longer flying high after the recent GDP figures came in much weaker than expected with GDP q/q slipping to 0.9%. Expectations had been high that we would see a boost in the data, and while we did see a jump on last quarter it was well below the market expectations and economists’ predictions. The NZ business manufacturing index also slipped to 55.1 (prev 55.8), however it’s still showing signs of expansion just not at the rate that was seen before. The trough of negative data for the NZ economy will take its toll and markets will be looking for a exit plan for the NZD, with many analysts expecting it to correct back down into the 0.70 range as the USD strengthens and the NZ economy struggles.

On the charts technically it has been looking very interesting for the NZD after the recent plunge through the bullish trend line which the market was semi respecting. For me it would seem that the bears have taken hold for two reasons. Firstly, the NZDUSD has rejected off its previous bullish trend line which is a strong bearish signal, and secondly the push higher before GDP figures was shot down by the 20 day moving average. Moving lower for me the next big signal would be the 50 day moving average which has so far been a large point of strength for any bearish movements trying to flex their muscle at the bulls. Below this support can be found at 0.7163 and 0.7046; with market expectations looking for a low around the 0.70 mark over the next few months.

The Australian dollar continues to find itself under ever increasing pressure, as despite rates being high and it still be an attractive buy for fixed interest rate investors, the economy continues to struggle. With no end in sight the market is now worried about the unemployment figures which are due out shortly. Westpac consumer sentiment came in at 0.3% (1.0% exp) yesterday, and the market for the most part is ever cautious now about being optimistic at all. Despite all of this the Australian employment market can be very hard to predict and we have seen many surprises when the market was all priced in for doom and gloom. So sometimes it’s a requirement to take anything with a grain of salt.

On the charts the AUDUSD is being dominated by the bears who are trying to push it lower in a tight channel which has so far shot to prominence. The 0.50 level on the fibonacci is so far holding back any dips lower, however, this level can crack under major pressure and this could very much be the case in the coming weeks. I would expect a push through here to lead to further support at 0.7346 and 0.7226. For me the coming strength of the USD and the Australian weakness in the economy create a golden opportunity that should be watched carefully.