NZD/USD neutral at 0.7250 after positive CPI; Uptrend 'breathing' before 0.7400?

Currently, NZD/USD is trading at 0.7245, down -0.75% or (54)-pips on the day, having posted a daily high at 0.7312 and low at 0.7222.

The New Zealand dollar vs American dollar had all the variables in place to continue its 'corrective' uptrend until two factors ruined the day; Yields going up and the Dow breaking the 20,000 wall. As soon as the positive CPI figure was released, +0.9% YoY from previous 0.4%, the spot price jumped 40-pips in the euphoria as inflation seems back on track.

Historical data available for traders and investors, during January, indicates that NZD/USD pair had the best trading day at +1.60% (Jan.17) or 115-pips, and the worst at -1.26% (Jan.18) or 89-pips.

Positive CPI; hold your horses long-kiwi

Bloomberg reports, "While the data published by Statistics New Zealand Thursday were firmer than expected, ongoing strength in the New Zealand dollar will remain a key downside risk to inflation, ASB chief economist Nick Tuffley said in a note to clients. “We expect the RBNZ will wait for inflation to return to comfortably within the target band before any rate hikes are considered,” Tuffley said. “We continue to expect the RBNZ to leave the OCR on hold for the foreseeable future.”

The report continues, "Westpac New Zealand chief economist Michael Gordon said he doesn’t think today’s data signal a stronger than assumed impulse for inflation going forward. “With imported inflation remaining modest, headline inflation is still expected to linger in the lower part of the target band for some time,” he said."

New Zealand's '$42.3billion a year' golden goose

Sally Rae, reporter at Otago Daily Times, notes, "Co-operatives and mutuals are organisations owned and controlled by their members and who distribute benefits based on use/patronage. Examples include Fonterra, Foodstuffs, Ballance Agri-Nutrients, Farmers Mutual Group, and Southern Cross Health Society. The report found the sector contributed revenue of more than $42.3billion a year and New Zealand's top 30 co-operatives and mutuals were responsible for 1.4million memberships, employment of 48,500 people, and a revenue to GDP ratio of 17.5%."

She further writes, "Those top 30 were very strong in agri-food, accounting for 65.2% of revenue, 67.6% of assets, and 82.8% of employment in the co-operative economy. The next largest sector by revenue was retail and wholesale, accounting for 30.3%. The agri-food and retail and wholesale sectors accounted for twice as much of New Zealand's co-operative economy compared to the world's top 300 co-operatives and mutuals and three times that of Australia's top 100."

Technical levels to watch 

In terms of technical levels, upside barriers are aligned at 0.7256 (50-SMA, red color) and above that at 0.7280-90 region (horizontal support). While supports are aligned at 0.7232 (100-SMA, red color) and below that at 0.7207 (low Jan.24). On the other hand, Stochastic Oscillator (5,3,3) seems to retrace from the oversold territory, therefore, there is evidence to expect further Kiwi gains in the near term. 

On the long term view, if 0.6883 (low Jan. 2017) is in fact, the ongoing bottom for the first semester, then upside barriers are aligned at 0.7303 (short-term 61.8% Fib) and a break above this level would open doors towards 0.7400 round figure. To the downside, supports are aligned at 0.7096 (short-term 50.0% Fib), then a dense support region between 0.6956 (reverse long-term 38.2% Fib) and 0.6889 (short-term 38.2% Fib). Furthermore, the question traders and investors need to weigh in mind; What catalyst will have the strength to boost the US dollar to new highs?

US growth will be much better next year on Trump corporate tax reform