Trading the News: New Zealand Retail Sales ex. Inflation

NZD/USD may stage a larger recovery ahead of the weekend as New Zealand Retail Sales are projected to increase another 1.0% during the last three-months of 2016.

What’s Expected:

Why Is This Event Important:

Signs of stronger consumption may encourage the Reserve Bank of New Zealand (RBNZ) to drop its cautious tone as ‘the recovery in commodity prices and more positive business and consumer sentiment in advanced economies have improved the global outlook,’ and the central bank may show a greater willingness to gradually move away from the accommodative policy stance as ‘longer-term inflation expectations remain well-anchored at around 2 percent.’ With Governor Graeme Wheeler scheduled to step down in September, the central bank may alter the policy outlook ahead of the transition, but the RBNZ may continue to pursue a wait-and-see approach as ‘numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.’

Expectations: Bullish Argument/Scenario

The pickup in private-sector lending paired with the ongoing improvement in the labor market may generate a strong retail sales print, and a positive development may spark a bullish reaction in the New Zealand dollar as it boosts interest-rate expectations.

Risk: Bearish Argument/Scenario

However, weak wage growth accompanied by sticky inflation may push New Zealand households to scale back on spending, and a dismal sales report may spark near-term headwinds for the kiwi as it puts pressure on the central bank to further support the real economy.

Bullish NZD Trade: Private Spending Climbs 1.0% or Greater

• Need a green, five-minute candle following the release to consider a long NZD/USD position.
• If market reaction favors a bullish kiwi trade, buy NZD/USD with two separate position.
• Set stop at the near-by swing low/reasonable distance from cost; at least 1:1 risk-to-reward.
• Move stop to entry on remaining position once initial target is met, set reasonable limit.

Bearish NZD Trade: 4Q New Zealand Retail Sales Disappoints

• Need a red, five-minute candle to favor a short NZD/USD trade.
• Implement same strategy as the bullish New Zealand dollar trade, just in reverse.

Potential Price Targets For The Release

NZD/USD Daily

Chart - Created Using FXCM Marketscope 2.0

• Broader outlook for NZD/USD remains tilted to the downside as price and the Relative Strength Index (RSI) continue to track the bearish trends carried over from the previous year, but the lack of momentum to break/close below the Fibonacci overlap around 0.7100 (38.2% expansion) to 0.7120 (50% retracement) may produce range-bound conditions in the days ahead as the pair struggles to push back above the former-support around 0.7240 (61.8% retracement) to 0.7270 (78.6% retracement).
• Interim Resistance: 0.7520 (50% retracement) to 0.7530 (78.6% retracement)
• Interim Support: 0.6840 (38.2% retracement) to 0.6870 (50% retracement)

Impact that the New Zealand Retail Sales report has had on NZD/USD during the last release

3Q 2016 New Zealand Retail Sales ex. Inflation

NZD/USD 10-Minute

New Zealand Retail Sales increased 0.9% in the third-quarter after expanding a revised 2.2% during the three-months through June, with nine of the 15 industries reporting higher sales. A deeper look at the figures showed a 1.2% decline in demand for clothing/footwear, with sales for furniture/housewares narrowing 1.0% during the same period, while demand for motor vehicle and parts increased another 3.4% after rising 2.9% in the second-quarter. The New Zealand dollar edged higher following the in-line print, but the move was short-lived, with the pair ending the day at 0.7007.