Kiwi Dollar Down But Not Out Just Yet
As it was for most pairs, Friday’s Brexit referendum saw the Kiwi Dollar react strongly to the surprise leave vote. Specifically, the outcome erased the pair’s gains which were made earlier in the week and in one fell swoop, a swell of uncertainty hammered the NZD. However, strong technicals and the NZ trade data results due early this week could give the NZD/USD the boost it needs to pull back above the 0.71 handle.
The Kiwi Dollar was initially in good form last week, the pair reaching a high of 0.7283 during Thursday’s session. The NZD’s bullishness resulted mainly from an uptick in the NZ Visitor Arrivals and Credit Card Spending data of 0.1% m/m and 5.9% y/y respectively. However, the pair took a beating early on in Friday’s session as the direction of the Brexit referendum began to become clear. Additionally, the effect of the Brexit vote saw the Kiwi Dollar unable to make use of the weaker US Core Durable Goods Orders results which contracted by 0.3% m/m.
Looking at the technical data now, the NZD remains bullish despite the bloodbath that was Friday’s session. EMA activity remains bullish and the large plunge has left the upwards sloping 100 day EMA basically undeterred. Additionally, the fall back to support has moved the pair out of the oversold territory that it was straying into last week. However, the Kiwi Dollar is still around the highest that it has been this year so watch out for any bears seeking to seize on market uncertainty and send the pair further south.
As we move on, strong NZ Trade data could prove to be the bedrock on which the pair builds a recovery. Specifically, the 358M Trade Balance result posted as the week opens should help to limit any further slips that might occur as the markets settle down in the wake of the referendum. Additionally, as the week moves forward, the New Zealand Building Consents and ANZ Business Confidence results are also due which could see the NZD/USD claw back some of Friday’s losses.
Ultimately, only time will tell us how much more downward pressure the Brexit vote can put on the Kiwi Dollar. However, early signs are pointing to a modest recovery for the NZD in the coming week if the fundamentals can continue to deliver strong results. Additionally, keep a watch on technical indicators as the RSI is likely to be a bellwether for when the bears are ready to come out swinging once again.