NZDUSD gained considerable ground last week as risk appetite returned to the currency markets, at least for now. The week began calmly with a bank holiday for New Zealand on Monday.

The rate then sold off to make its weekly low of 0.6571 on Tuesday, as the New Zealand stock market dropped 2% in the first fifteen minutes of trading.

Nevertheless, the rate recovered and then rallied sharply on Wednesday as the RBNZ raised its benchmark Official Cash Rate by 0.25 bps to 2.75% from 2.50%. This was the first RNBZ rate hike in New Zealand since July of 2007.

The rally in NZDUSD was fueled even further by the accompanying statement of RBNZ Governor Alan Bollard who noted "further removal of stimulus will be reviewed in light of economic and financial market developments."

In addition, the New Zealand Overseas Trade Index released on Wednesday showed an increase of 5.9% quarter on quarter, versus an expected increase of only 1.9%.

This brought NZDUSD up to its weekly high of 0.6909 on Friday, before the rate closed the week slightly lower at 0.6907, up a whopping 3% from the previous weekly close.

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 upcoming week of economic data due for release in New Zealand calms down considerably.

In fact, nothing much is scheduled for release other than the important New Zealand Retail Sales report due to be announced on Monday (-0.2% and -0.4% Core M/M).

United States:

The upcoming week of economic data releases for the United States looks quite active and offers key inflation data which includes Wednesday's PPI data and Thursday's CPI numbers.

Monday begins the week with a speech by FOMC Member Bullard in Tokyo, who will also be speaking in Hong Kong on Tuesday.

Tuesday also offers Import Prices (-1.1% M/M), the Empire State Manufacturing Index (20.1) and TIC Long-Term Purchases (77.3B). The NAHB Housing Market Index (22) is also scheduled tentatively for Tuesday.

These numbers will be followed on Wednesday by the featured release of the Producer Price Index or PPI (-0.5% and 0.1% Core M/M), as well as Building Permits (0.63M), Housing Starts (0.65M), Industrial Production (0.9%M/M) and the Capacity Utilization Rate (74.6%). In addition, Fed Chairman Bernanke is scheduled to make a speech in New York.

Thursday is also a weekly highlight, featuring the important Consumer Price Index or CPI data (-0.2% and 0.1% Core M/M), as well as the Current Account (-120B), Initial Jobless Claims (454K), the Philly Fed Manufacturing Index (21.3) and the CB's Leading Index (0.4% M/M).

That ends the week since Friday has nothing of importance due out.

Technical Outlook for NZDUSD

On the technical front, NZDUSD saw an initial sell off last week that reached down to 0.6571 turn into an impressive rally up to 0.6909. As it happens, this is the precise wave equality objective of the move from 0.6560 to 0.6898 projected off of the subsequent 0.6571 low.

Additional Fibonacci projection targets for this corrective upwards move come in at 1:1.236 = 0.6989, 1:1.382 = 0.7038, 1:1.500 = 0.7078, 1:1.618 = 0.7118 and 1:2 = 0.7247.

Nevertheless, the rate still failed to close the week above its 200-day Moving Average that has now flattened out at 0.7124. This situation has continued to shift the medium-term outlook for NZDUSD from neutral to bearish, so selling rallies continues to be the preferred strategy.

In addition, the rate's 14-day RSI remained in neutral territory last week, now coming in at the 55 level. This sort of level should not prevent the rally from continuing further during the coming week, thereby providing better opportunities to sell.

Support in NZDUSD shows up at 0.6801, at 0.6651 and at 0.6571. Resistance is indicated at the 0.6909 level, at the psychological 0.7000 level, and above that at 0.7039.

Note: Past performance is not indicative of future results.

Figure 1: Daily candlestick chart of NZDUSD showing its 200-day MA in red, Bollinger Bands in green and the 14-day RSI in the indicator box in blue.