During last week's trading sessions, NZDUSD experienced a pullback as the Kiwi came under pressure from the softening price of gold and the resulting weakness in the Australian Dollar. The week started off with the pair declining on Monday in spite of news that New Zealand CPI had increased by +1.1% for the quarter. This result was higher than the +1.0% increase anticipated by the market that was also the expected trigger point for the RBNZ to act on. The notable increase in consumer prices in New Zealand was attributed to an increase in energy and tobacco prices. Last Monday's U.S. data releases included TIC Long Term Purchases, which printed at the 128.7B level that was significantly above the anticipated 47.5B number and more than double its former level of 61.2B. Also out last Monday in the United States was the Capacity Utilization Rate that came out in line with market expectations at the 74.7% level. Nevertheless, U.S. Industrial Production fell by -0.2% for the month - a result that was worse than the anticipated rise of +0.3%.

Tuesday's session saw NZDUSD trade up to its weekly high point of 0.7600 before it went into tailspin in the wake of RBNZ Governor Bollard negated recent calls for the RBNZ to officially intervene in the forex market to weaken the Kiwi in order to support New Zealand based exporters. Bollard noted that the central bank's options were limited and he remarked that, "the times we feel we can be effective are when we are around the peak or trough of the cycle and also when the exchange rate setting may be fundamentally driven by domestic policy distortions." Also during last Tuesday's session, China made a surprise move to increase its benchmark interest rates that had been stable since 2007. The PBOC's deposit and lending rates were each being raised by 25 basis points, with the one year deposit rate hiked from 2.25% to 2.5%, and the lending rate was raised from the 5.31% level to 5.56%. With respect to U.S. economic numbers out last Tuesday, Building Permits printed at the 0.54M level that was worse than the 0.58M anticipated. Also, U.S. Housing Starts gained ground to 0.61M that compared favorably with the anticipated 0.59M.

NZDUSD then experienced a sharp rally on Wednesday after New Zealand Visitor Arrivals increased by +0.9% for the month that compared favorably with its previous lower reading of +0.7%. In addition, New Zealand Credit Card Spending gained by +4.1% for the year that was almost double its previous rise of just +2.1%. Furthermore, Wednesday saw the release of the Fed's Beige Book which indicated that U.S. economic activity continued to rise at a modest pace from September to early October.

Nevertheless, the rate then sold off on Thursday in the absence of any economic data out from New Zealand as the price of gold came off and the Australian Dollar also traded considerably softer. In terms of U.S. numbers seen out last Thursday, Weekly Initial Jobless Claims came out consistent with market expectations at the 452K level, although the Philly Fed Manufacturing Index disappointed the market by showing a 1.0 level that was significantly below the 2.3 result anticipated by the market.

Friday's trading session marked the initial day of the G-20 meetings that were held in Gyeongju, South Korea through Saturday. Perhaps as a result of this factor subduing trading interest, NZDUSD largely consolidated on Friday, eventually closing the week at 0.7465 and showing an overall decline of -1.0% on the week.

Fundamental Outlook for NZDUSD

The primary market-moving economic data releases and policymaker speeches scheduled for this week in New Zealand and the United States are as follows:

New Zealand:

The economic data week coming up in New Zealand is about as peaceful as the previous week, although its key releases will feature the RBNZ's Rate Decision and the associated Rate Statement due out on Thursday.

The quiet week starts with the Labour Day Bank Holiday being observed in New Zealand on Monday, and Tuesday also has nothing notable schedule for release.

Wednesday will therefore begin the economic data releases for the week with just the NBNZ Business Confidence index (last 13.5) due out.

Thursday's session will feature the highlighted Official Cash Rate Decision from the RNBZ and its associated Rate Statement. The RBNZ is currently expected to maintain its benchmark interest rate constant at the 3.00% level.

Friday will conclude the rather peaceful week with the release of the New Zealand Trade Balance (-245M) and Building Consents (-17.8% m/m).

United States:

The economic data week coming up in the United States is about as active as last week, and the calendar will feature the key Advance U.S. GDP data that is due for release on Friday, in addition to important housing market data coming out throughout the week.

The busy week begins on Monday with a talk scheduled in Arlington by Federal Reserve Chairman Ben Bernanke, followed by a talk in Ithaca by FOMC Member Dudley. Existing Home Sales (4.29M) will also be released on Monday.

During Tuesday's session, FOMC Member Hoenig is scheduled to give a talk in Lawrence, and FOMC Member Dudley will speak in Rochester. Tuesday's data releases include the CB Consumer Confidence survey (49.6), the Richmond Manufacturing Index (-1), the S&P/CS Composite-20 HPI (+2.6% y/y) and the HPI (-0.2% m/m).

Wednesday's data releases include Durable Goods Orders (+1.5% m/m), Core Durable Goods Orders (+0.4% m/m), New Home Sales (301K) and Crude Oil Inventories (last 0.7M). In addition, FOMC Member Dudley will give another speech, but in Buffalo this time.

Thursday's session will offer the closely watched Weekly Initial Jobless Claims data (453K), in addition to Natural Gas Storage (last 93B).

Friday concludes the active data week, and it will feature the highlighted release of the Advance GDP data (+2.1% q/q). Also due out on Friday will be the Advance GDP Price Index (+1.9% q/q), the Chicago PMI survey (58.2), the Employment Cost Index (+0.6% q/q), Revised University of Michigan Inflation Expectations (2.6%), and the Revised University of Michigan Consumer Sentiment (68.4) survey.

Technical Outlook for NZDUSD

On the technical front, NZDUSD did not manage to make a new recent high over the 0.7642 level attained the previous week. Instead, the rate came off as far as the 0.7425 level during last Tuesday's session before it then consolidated and ended the week at 0.7465, showing an overall decline of -1.0% on the week.

Now that the 0.7633 level of October 2009 was bested two weeks ago, the next major technical level to the upside for NZDUSD remains the key 0.8213 high last seen on March 14th of 2008. This level could be seen within the present medium term up move provided that the key 61.8% retracement level at 0.6944 of the down move from 0.8213 to the 0.4892 low of March 4th 2009 continues to hold.

Furthermore, the pair is now testing the lower trend line of a rather sharply slanting short term up channel bounded by 0.7717 on the top and 0.7440 on the bottom. The rate also continues to trade in a slightly expanding medium term upward channel pattern bounded by 0.7952 on the upside and 0.7219 on the downside. These patterns provide a bullish outlook for the rate.

This bullish outlook is also supported by the fact that NZDUSD continues to convincingly trade and close well above the level of its 200-day Moving Average last week. The key indicator now comes in at 0.7113 and has now shifted to sloping slightly upward after previously being downward sloping.

Also, the most recent peak in NZDUSD at 0.7642 was confirmed by a new high reading of 69 on the key 14-day RSI indicator in the upper part of neutral territory compared to RSI reading of 67 seen at the rate's previous peak at 0.7591 made on September 29^th. The key indicator currently has a reading in the upper central part of neutral territory at 53 that should not present an impediment to a movement in either direction for NZDUSD.

With the rate having closed last Friday at the 0.7465 level, the chart for NZDUSD now shows support on the charts near present levels at 0.7425, below that in the 0.7303/56 and 0.7213/62 regions, and at 0.6962, which is just below the key psychological 0.7000 level. Resistance for NZDUSD shows up just above current levels at 0.7506, in the 0.7567/ 0.7618 region, at the key 0.7633 and 0.7642 highs, and then above there at 0.7759.

This technical scenario indicates a bullish short and medium term outlook for NZDUSD, with the shorter term picture suggesting seeking to buy on dips for another test of the 0.7642 high seen two weeks ago.

A break of that key level could accelerate the medium term bullish view for NZDUSD toward a target of the 0.8212 major high last seen on February 27^th of 2008. This objective could be frustrated if the aforementioned 61.8% retracement level at 0.6944 - which comes in just under key psychological support around the 0.7000 level - fails to hold and other key indicators turn negative for the Kiwi.

Figure 1: Daily candlestick chart of NZDUSD showing its 200-day MA in red, Bollinger Bands in green, Fibonacci Retracement levels in royal blue, Trend Lines in purple and the 14-day RSI in the indicator box in pale blue.