New Zealand Dollar edges down against USD after US factory gate data

• The New Zealand Dollar declines marginally versus the USD after the release of US data. 
• Producer Prices in the US rose more than expected in February and lower unemployment claims indicated a stronger labor market. 
• Retail sales rose less than expected, providing an antidote to the inflationary PPI data. 

The New Zealand Dollar (NZD) is trading lower in its NZD/USD pair on Thursday after the release of US macroeconomic data suggests price pressures are likely to remain above what had been expected. 

Producer Prices (PPI) for February came out higher than economist’s forecasted, according to data from US Bureau of Labour Statistics. It suggests inflation is likely to remain stubbornly high in the US, forcing the Federal Reserve to keep interest rates at their current level for longer, and scotching hopes of an early interest-rate cut.

Higher interest rates are generally positive for a currency because they attract more inflows of foreign capital, so the data weighed on the NZD/USD pair, which measures the buying power of one New Zealand Dollar in US Dollar (USD) terms. 

US Retail Sales came out lower than expected, however, providing an antidote to the higher PPI result, as lower demand for shoppers tends to have a disinflationary effect. 

At the same time, lower-than-expected US Jobless Claims indicated the possibility of inflationary pressures from a tight labor market. 

New Zealand Dollar falls against USD as factory gate inflation beats expectations

The BLS data shows that the Producer Price Index ex Food and Energy (Core PPI) rose by 2.0% in February, not the 1.9% forecast, and the same as the previous 2.0% in January. 

Monthly Core PPI showed a 0.3% increase in prices, which beat the 0.2% rise expected but was still lower than the 0.5% from the previous month. 

The headline Producer Price Index (PPI) rose 1.6% in February, which was well above the 1.1% YoY gain expected and the 1% in January. MoM PPI rose 0.6% versus the 0.3% forecast –  the same as the 0.3% previous. 

US Retail Sales registered a 0.6% rise MoM rather than the 0.8% rise forecast, but still above the 0.8% decline in January. 

US Initial Jobless Claims for the week of March 8 came out at 209K when a 218K result had been forecast, yet this was lower than the 210K previously.  

Technical Analysis: New Zealand Dollar continues falling inside range

The NZD/USD pair continues falling after touching the top of its range in the 0.6220s, where it formed a bearish Shooting Star Japanese candlestick pattern on the 4-hour chart (circled). 

New Zealand Dollar vs US Dollar: 4-hour chart

The combination of the Shooting Star, the range high and the downside move since, suggest the short-term trend has changed, and the pair is descending within its range, back down towards the range lows at around 0.6080-90. 

Whilst there has been some “backing and filling” over recent days and the formation of a wedge-like consolidation range, the pair is likely to eventually break lower and continue falling within the range. 

The cluster of major moving averages in the lower 0.6100s is likely to present some support and could impede smooth downside, however, a break below the green 200-4-hour Simple Moving Average (SMA) at 0.6120 will open the space lower. 

A break above 0.6190 would suggest bulls have the upper hand again and could signify the pair is preparing to break out from the range.

A break above the range high and the high of the Shooting Star would provide stronger confirmation the market was going higher. Such a move would probably reach a target at 0.6309, the 61.8% Fibonacci extrapolation of the height of the range from the breakout point higher.