Baxia Markets
May 23, 2024

NZDCAD Rallies on Strong Retail Sales, Awaits Key Canadian Housing Data

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Yesterday, NZDCAD saw a significant advance, gaining over 70 pips primarily due to the Reserve Bank of New Zealand's (RBNZ) decision to keep the interest rate unchanged at 5.50%. This news initially sparked a bullish reaction in the market. However, the excitement was short-lived as the market soon corrected, retracing some of the initial gains.

Adding to the bullish sentiment, New Zealand's Core Retail Sales data released today showed a 0.4% increase, surpassing both the previous figures and economists' forecasts. This positive economic indicator further fueled NZDCAD's upward momentum, despite the initial correction following the interest rate announcement.NZDCAD Rallies on Strong Retail Sales, Awaits Key Canadian Housing Data

In contrast, traders are now keenly awaiting Canada's New Housing Price Index release. Economists predict an increase, and if the actual data surpasses these expectations, it could strengthen the Canadian dollar (CAD) against the New Zealand dollar (NZD). Conversely, a lower-than-expected result could weaken the CAD, providing further support for the NZD.

The market reacted to these developments with a short-term bullish rally. However, this rally has so far been unable to break above the critical resistance level highlighted by the red rectangle on the charts. This resistance level remains a key barrier for NZDCAD's continued upward movement.

From a technical perspective, the indicators are sending mixed signals. The Exponential Moving Averages (EMAs) show a strong bullish sentiment, with the EMA 50 positioned above the EMA 200. The positive slope of both EMAs indicates ongoing upward momentum, supporting the bullish outlook.

The Ichimoku indicator further reinforces this sentiment, with the Tenkan-sen, Kijun-sen, and Chikou span all positioned above the cloud. This alignment is typically indicative of a robust bullish trend, suggesting that the market could continue its upward trajectory.

However, caution is warranted as oscillator indicators, specifically the MACD and RSI, are showing signs of bearish divergence. This divergence is an early warning signal of a potential bearish reversal. For this reversal to be confirmed, traders should look for the RSI to move into the oversold territory and for prices to fall below the EMA 200.

Given the current market dynamics, NZDCAD presents an intriguing opportunity for traders. The release of Canada's New Housing Price Index could be a pivotal moment, potentially providing a catalyst for significant market movements. Traders should be prepared to either go long or short, depending on the economic data and subsequent market reaction.

Overall, while the bullish sentiment remains strong, the possibility of a bearish reversal cannot be ignored. Traders should closely monitor key indicators and economic releases to make informed decisions in this volatile environment.

Key Economic Releases to Watch Today

NZD, Core Retail Sales

Actual 0.4% vs Forecast 0.0% vs Previous -1.6%

NZD, Retail Sales (QoQ)

Actual 0.5% vs Forecast -0.3% vs Previous -1.9%

GBP, S&P Global/CIPS UK Composite PMI

Forecast 54.0 vs Previous 54.1

GBP, S&P Global/CIPS UK Manufacturing PMI

Forecast 49.5 vs Previous 49.1

GBP, S&P Global/CIPS UK Services PMI

Forecast 54.7 vs Previous 55.0

USD,  Initial Jobless Claims

Forecast 220K vs Previous 222K

USD, S&P Global US Manufacturing PMI

Forecast 50 vs Previous 50

USD, S&P Global Services PMI

Forecast 51.2 vs Previous 51.3

USD, New Home Sales (Apr)

Forecast 677K vs Previous 693K

CAD, New Housing Price Index (MoM) 

Forecast 0.1% vs Previous 0.0%




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