New Zealand Turns Bullish after Rising Dairy Prices and Low Unemployment

New Zealand DollarIn April’s last week, a higher than expected flash manufacturing PMI reading and strong current account surplus has pushed the Eurodollar to a higher position against US Dollars and other major currencies across the world.

The rally was extremely strong against a commodity currency namely New Zealand Dollar.

The currency pair EUR/NZD reached a high figure of 1.5940 from a low of 1.5215 in a time period of 10 days. The rise in Euro is also contributed by the probable victory of Emmanuel Macron, a pro-EU leader in the French elections.

However, it is to be noted that the economic data (unemployment rate, inflation, GDP and wage growth) determines the overall strength of any currency. In this context, we believe that the currency pair EUR/NZD will experience a short-term correction in future as explained below.

Brookings Institution

The employment rate of Euro Zone edged lower to 9.5% in the month of March this year as compared to 10.2% last year. The figures quoted by Eurostat were higher as compared to analysts’ expectation of 9.4% but remain unchanged from the last month. Germany and the Czech Republic have the lowest unemployment rate of 3.9% and 3.2% respectively. On the other hand, countries like Spain and Greece have the highest unemployment rate of 18.2% and 23.5% respectively.

There is high unemployment rate in the Euro Zone and the country of New Zealand is almost near to full employment. As per the data of Statistics New Zealand, there is 4.9% reduction in the unemployment rate in the March quarter as compared to 5.2% last quarter. The market anticipated an unemployment rate of 5.1%. The unemployment rate for males is 4.2% which is lowest in 9 years.

There is 1.2% growth of employed people to 29,000 in the March 2017 quarter. In addition to this, employment growth exceeded the growth in working-age population (0.7%) for the 6th month in succession.

In the auction conducted in New Zealand on Tuesday, the average price of dairy prices increased to $3,166. Accordingly, there is a 3.6% gain for GDT Index on an M-O-M basis. This is the 4th consecutive term where the prices of dairy products have increased.

Hence, it is likely that the rise in dairy product prices and strong employment rate will make the New Zealand dollar stronger against the Euro.

As you can see from the chart of EUR/NZD below, a bearish swan pattern can be seen. A firm resistance at 1.5850 is also indicated from the price chart. Hence, we can expect the downtrend to extend to 1.5500.

EURNZD Pair May 4th 2017

EURNZD Pair May 4th, 2017

As a currency trader, you can create a short position in the currency pair EUR/NZD at or above 1.5810. In order to keep the risks under control, you can place stop order above 1.5910 and wind the short position near 1.5500.

In order to make a profit from the impending downtrend, you need to invest in a low or below option. You need to make the investment when the currency pair is trading near 1.5840 and set the trade expiry date around 12th May.

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