Soft increase in GDT index reading turns Kiwi dollar weak

The US dollar’s rally against major currencies ended temporarily in the last week of December.

The Greenback extended losses in the first-half of January 2017 when the US President-elect Trump opined that the currency’s strength is hurting the US economy.

The comment allowed safe haven and commodity currencies to gain against the US dollar. In particular, the Kiwi dollar recorded a near two month high of 0.7220 against the US dollar.

However, on the basis of arguments provided underneath, we anticipate a bearish reversal in the NZD/USD pair.

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In the dairy auction conducted on January 17th , the average price of dairy products increased marginally to $3,517 per ton. The Global Dairy Trade index gained a mere 0.6%, compared with the prior event. The lacklustre increase in the GDT index is certainly a cause of concern to investors. The currency has already lost considerable attraction as a carry trade currency after the Fed underlined its intention to increase the benchmark rates thrice this year.

In the meanwhile, the US economic data continues to surpass analysts’ estimates. The Federal Reserve Bank of Philadelphia reported an excellent manufacturing index reading of 23.6 for January. It is nearly 8 points higher than analysts’ expectation of 16.3, and 2.1 points higher than December reading. The leading indicator signifies improving economic conditions in the US.

Similarly, the Department of Labor announced that the number of jobless claims decreased by 15,000 to 234,000 in the week ended January 14th . The market expected as many as 252,000 claims. There were upwardly revised 249,000 claims in the previous week.

After reporting a sharp decline in the new housing starts in November, the Census Bureau reported a rebound in the constructing activity in December. The number of housing starts increased sharply to 1.23 million in December, compared with an upwardly revised 1.10 million starts in November. The Wall Street analysts were anticipating the number of housing starts to increase to 1.19 million in December. Thus, considering the buoyant US economic data, fundamentally, the NZD/USD pair is expected to turn bearish in the short-term.

The NZD/USD pair has failed multiple times in the past one year to get past the resistance level of 0.7220. Minor support for the pair exists at 0.7040, while the major support exists at 0.6890. The violet circle in the sub-chart points to the failed attempt of the stochastic oscillator to re-enter the bullish zone. This indicates that the pair is losing momentum. So, traders can look forward to a downtrend in the NZD/USD pair.

A currency trader can go short near 0.7180 in the NZD/USD pair. A stop loss order can be placed at 0.7260. The short position can be winded near 0.7040. Traders who are willing to take risks can wait for the pair to fall to a low of 0.6980.

A short position can be created in the binary options market by purchasing a put option from a broker of choice. The position should be taken only when the currency pair trades above 0.7165. The trader should also ensure that the contract remains valid for at least seven trading days.

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