By IFCMarkets
Investors expect another interest rate cut in New Zealand
Several weak economic indicators came out in New Zealand last week. They could have limited strengthening of New Zealand dollar which has advanced 15% since mid-January this year. May it retrace down?
The weak external trade data for Q2 2016 came out in New Zealand on Thursday. Import prices rose 0.3% while export prices fell 1.9%. The value of all buildings in Q2 was released on Friday, it rose 5.5% which raises inflation risks. Inflation is 0.4% in New Zealand while the Reserve Bank rate is much higher being 2%. This year the interest rate was cut twice, each time by 0.25%. Chief economist of Reserve Bank of New Zealand Zoe Wallis said in August that further rate cut to 1.75% is possible as early as in November this year or in February 2017. Most market participants believe the rate will be cut on the Bank meeting on November 10, 2016. The next significant data will be released in New Zealand on September 7 – the manufacturing sales – and the electronic card retail sales for August on September 9. The news from US also affects the NZDUSD rate. It falls with higher chances for Fed rate hike and on positive US economic data.
On the daily chart NZDUSD: D1 has hit a fresh 15-month high and its growth halted. Now it is fluctuating in a sideways range struggling for getting back to the rising trend. Markets expect the Reserve Bank of New Zealand to cut the interest rate and the US Fed to raise it. Such a trend may make NZDUSD pair weaker.
The bearish momentum may develop in case the NZDUSD breaches below the last fractal low at 0.72. This level may serve the point of entry. The initial stop-loss may be placed above the last fractal high, 15-month high, the Parabolic signal and Bollinger band at 0.739. Having opened the pending order we shall move the stop to the next fractal high following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 0.739 without reaching the order at 0.72, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Free Reports:
| Position | Sell |
| Sell stop | below 0.72 |
| Stop loss | above 0.739 |
Market Analysis provided by IFCMarkets