Lower growth outlook bearish for New Zealand dollar
Policy proposals to limit immigration, tax capital gains and restrict foreign ownership of properties are expected to hurt growth outlook of New Zealand economy. Will the NZDUSD continue falling?
The Reserve Bank of New Zealand kept the official cash rate on hold at 1.75% at its September 28 meeting. Since then Labour and New Zealand First parties’ coalition government has been formed. The coalition has advocated policy changes like limiting immigration, taxing capital gains to curb property speculation and placing restrictions on foreign ownership of properties. New policies are seen as detrimental to future investment and economic growth outlook, weighing on New Zealand dollar.
On The central bank anticipated improved economic performance. The next RBNZ meeting is scheduled for September 28. No change in policy is expected as the central bank indicated monetary policy will remain accommodative for a considerable period and is reluctant to raise rates which may hurt economic growth. Improving economic growth is bullish for New Zealand dollar.
New Zealand economy accelerated in the second quarter: Q2 GDP rose 0.8% on quarter, up from upgraded 0.6% in first three months of 2017. Improving global economic performance is a major factor in boosting New Zealand economy as evidenced by higher export demand and improving terms of trade in last three quarters.
The NZDUSD: D1 accelerated the decline following the coalition formation between the Labour and New Zealand First parties on September 19. The 50-day and 200-day moving averages MA(50) and MA(200) have formed the bearish Death Cross chart pattern on daily timeframe.
- Parabolic indicator gives a sell signal.
- The Donchian channel indicates downtrend: it is tilted down.
- The MACD indicator gives a bearish signal: it is below the signal line and the gap is widening.
- The stochastic oscillatorgives a bullish signal: it is in the oversold zone.
We believe the bearish momentum will continue after the price breaches below the lower Donchian boundary at 0.6817. A pending order to sell can be placed below that level. The stop loss can be placed above the last fractal high at 0.7206. After placing the order, the stop loss is to be moved every day to the next fractal high, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop loss level (0.7206) without reaching the order (0.6817), we recommend canceling the position: the market sustains internal changes which were not taken into account.
Technical Analysis Summary
|Sell stop||Below 0.6817|
|Stop loss||Above 0.7206|
Market Analysis provided by IFCMarkets