NZDUSD Nearing Key .7610 Level – Can It Bounce A Third Time?
Another day, another decade high in the dollar. It's business as usual for the world's reserve currency today, led by dollar strength against the Japanese yen and commodity dollars. Perhaps the most salient catalyst for today's wave of dollar strength has been concern about the world's second-largest economy, China. Overnight, government data showed that China grew at an as-expected 7.3% annualized rate in the fourth quarter, but it's important to note that this is the slowest rate of expansion for China in 24 years! Combined with the IMF's downgrade to Chinese growth expectations (to 6.8% in 2015 and just 6.3% in 2016), FX traders have punished currencies dependent on continued growth in the Middle Kingdom.
One such currency is NZDUSD, which has been consolidating within a tight 400-pip 0.7610 to 0.8000 range over the last four months; the range has been an even more compact 250 pips (0.7610-0.7860) since the start of December. As of writing, the kiwi is dropping down to test the bottom of that range under 0.7700. Meanwhile, the secondary indicators are generally neutral, with the MACD indicator trading level with its signal line and the “0” level, while the pair's RSI remains trapped within its own 40-55 range.
Though trade in NZDUSD has been lackluster of late, a breakout is growing increasingly likely. From a fundamental perspective, there surfeit of data on tap over the rest of the week, including NZ CPI (later today), US building permits and housing starts (tomorrow), NZ manufacturing data and US initial unemployment claims (Thursday), and Chinese PMI and US existing home sales (Friday), to say nothing of possible spillover from Thursday's highly-anticipated ECB meeting. As long NZDUSD holds above 0.7610, a bounce is favored this week, but if that key floor gives way, bears may start to turn their eyes down toward the key psychological level at .7500 or previous support around .7400. Either way, traders should have a lot more clarity on where NZDUSD is heading soon.
