NZD slumps on trade balance

The dominant theme in the FX space remains USD strength and it seems to be taking a toll on the risk currency pairs out there.

NZD
Source: Bloomberg

NZD/USD is one currency pair I’m watching closely at the moment, as the pair’s recent rally continues to unravel.

Remember the kiwi was one of the strongest-performing currencies earlier in the year when the RBNZ went through its rate hike cycle. However, the RBNZ has grown increasingly concerned about strength in the NZD impacting growth, and there’s even some talk about the RBNZ intervening.

Trade balance numbers out of NZ this morning showed a wider-than-predicted trade deficit for July of $692 million, versus -$475 million expected. There was a pretty sharp drop in exports, which can be attributed to the impact of a high NZD and deteriorating dairy prices. This has seen the pair drop to its lowest since February, with momentum firmly to the downside.

NZD/USD looking bearish

From a price-action perspective, NZD/USD has breached the 61.8% retracement of the rise from February lows at 0.8052 to July highs at 0.8838. This leaves the pair particularly vulnerable and, should the round number support at 0.8300 be broken as well, these losses could be extended. Perhaps a concern for the bears at the moment is the fact the pair is in oversold territory. This could discourage fresh selling in the near future.

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