RBNZ: Economic Preview and NZD/USD

New Zealand GDP in Q4 was up 0.9% but in monthly average terms, GDP trades under each accurately predictable and specially designed averages dating to Q1 1990. The big number to beat is the 3 year average at 1.81 then the 2 year at 2.24 and 4 year at 2.30. Despite a healthy +2.5% increase in construction as reported by Statistics NZ, Agriculture was down 1.7% and Fixed Asset Investments were also down 1.1%. Exports were positive 0.3% yet Imports were + 0.7%. Nothing out of sync is found in the averages except a meandering GDP price level not overbought or oversold. The averages however are dropping.

New Zealand Overnight Cash Rate at current 2.21 price is also below every monthly average from 1- 10 years for a total of 10 averages. When the RBNZ raised OCR from 2.50 to 3.00, the point at 3.0 traded just above the 20 year average at 2.86. The Knut Wiksell 1898 theory of an interest rate above a 20 and 25 year average is an economy trades at its equilibrium point. At OCR 2.21, New Zealand trades well below equilibrium. The nearest average to beat is the 7 and 5 year at 2.67 and 2.69. Then next comes the 6 year at 2.70 and 4 year at 2.76. Despite oversold averages, 2.67 and 2.69 lack ability to break based on targets. The best target above is 2.60. Targets range from 1.59 – highs at 2.60. More economic under performance is slated for the future.

The 10 and 2 year yield spread currently trades at 0.76 and far below April 2014 highs at 0.95. The April 2014 – April 2016 range trades between 0.52 – 0.95. January, February, March and April 2015 saw dips to 0.13, 0.17, 0.23 and 0.22. April 2011 experienced highs since January 2010 at 2.05. Current yield spreads historically since NZD 1980’s free float remain on the floor.

Inflation at 0.2 as well trades below 8 specially designed averages dating to Q1 1990. The highest average and overall numbers to rise above are found at the 4 and 5 year averages at 0.63 and 0.62. The next vital points above are located at 0.30, 0.32 and 0.40. The most important number above is found at 0.50. Any future rises in Inflation are corrections inside a large downtrend.

NZD/USD Correlates to EUR/USD at 95% yet both EUR/USD and NZD/USD negatively correlates to EUR/NZD at minus 75% V EUR/USD and minus 92% V NZD/USD. NZD/EUR correlates to NZD/USD at + 92%. Topside point ranges in NZD/USD are located at 0.6955 and 0.6897. Bottoms are found at 0.6839 and 0.6790. The bigger picture in NZD/USD is a vital break point above is found at 0.7071. Below 0.6685 and 0.6798 hold current prices from significant downsides. Intraday, NZD/USD trades at top of its ranges.

EUR/NZD big break points above are located at 1.6481, 1.6590 and below 1.6224. Intrady top is found at 1.6460 and below 1.6331. For NZD/EUR big break points intraday translates to 0.6123 and 0.6075. Overall big breaks are found at 0.6177 above and below 0.6069 and 0.6029.

Brian Twomey, Inside the Currency Market, btwomey.com