Upbeat Manufacturing Index Data Strengthens Kiwi Dollar

Upbeat Manufacturing Index Data Strengthens Kiwi Dollar

The NZDJPY pair declined last week after the Reserve Bank of New Zealand’s Governor Adrian Orr maintained the official cash rate (OCR) at 1.75% and stated that there will be no change in the interest rates for the foreseeable future. The disappointed market pushed the Kiwi lower. Better-than-anticipated current account surplus of ¥1.77 trillion also strengthened the yen. However, the facts presented underneath indicate that the NZDJPY pair, which is trading at about 76.10 levels, will rally in the days to come.

Following the monetary policy meeting held last week, the Reserve Bank of New Zealand said “The Official Cash Rate (OCR) will remain at 1.75 percent for some time to come. The direction of our next move is equally balanced, up or down. Only time and events will tell.”

The above statement led the Kiwi dollar’s fall. However, the central bank governor also opined the economy is in a sweet spot due to robust growth, low levels of unemployment and low inflation. Presently, inflation is at 1.1%, while unemployment is at 4.4%. Furthermore, the economy is growing at 2.9%. To RBNZ, the recently elected government has given a dual mandate of maintaining inflation at 2% and maximizing employment. Further, the central bank governor Orr believes the appreciation in house price has almost normalized, which, according to him, is a good sign. Regarding concerns over China, Orr said “the problems are well identified and they seem highly committed to working through these problems.”

As far as economic data is concerned, the Bank of New Zealand-Business New Zealand’s seasonally adjusted Performance of Manufacturing Index (PMI) grew to 58.9, from 52.2 in the earlier month. While the Kiwi economy is improving, the Japanese economy is showing signs of weakness.

Japan may be on the verge of ending its longest period of economic growth, since the economic boom in 1980s. The economy had expanded consecutively for the past eight months. The poll of 18 analysts indicated that the Japanese economy could have contracted at an annualized rate of 0.2% in 1Q18, after a 1.6% expansion in the last quarter of 2017. This marks the first contraction of the world’s third-largest economy since late 2015.

Furthermore, analysts believe the private consumption has stalled, after recording a growth of 0.5% in the last quarter of 2017. Private consumption accounts for 60% of Japan’s GDP. The trade balance (exports minus imports) also failed to provide the crucial contribution to the GDP. The export grew less than anticipated in March, while orders declined sharply in April due to a stronger yen. Even machinery orders fell 3% in March, compared to the earlier month. Therefore, fundamentally, an uptrend in the NZDJPY pair is expected.

The price chart indicates strong support for the NZDJPY pair at 76.10. Furthermore, the on balance volume is making new highs. Therefore, we are expecting a bullish reversal in the NZDJPY pair.

NZDJPY - Technical Analysis = 15th May 2018

To gain from the probable uptrend, we are planning to open a long position in the NZDJPY pair near 76.10, with a stop loss order below 75.10. If the currency cross rallies as expected, then we would dilute our long position near 77.80.

Additionally, we may use one of our binary option trading accounts to purchase a call option, which does not expire before May 23rd. The investment may be made only if the currency pair trades near 76.10 in the Forex market.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.

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