At 4.5%, credit card retail sales remain elevated compared with some economies, yet the 1yr average suggests further weakness ahead. NZDUSD has failed to take the Feb highs and the odds of a retracement lower are quickly building.
Electronic card retail sales fell from 5.2% YoY to 4.5% YoY, a two-month low which has dragged the 12-month average down to 4.9%. The 1yr average better displays the cyclical tendency of retail spending, which peak in Q2 2016 and suggests we may continue to see downwards pressure on retail spending throughout 2017. The monthly read was steady at 0%, yet as this followed on from a -0.4% contraction in May which was the 3rd contraction in 4 months, further softness is yet to be revealed in the YoY read. Also, whilst -0.4% contraction may not sound too much, but by historical standards it is at the extreme of a -1 standard deviation.
However, where retail sales suggest further weakness from the consumer side, business survey’s such as the PMI’s continue to suggest support for the economy. Tomorrow we get to see if business PMI maintains positive outlook.
We have monitored NZDUSD over recent weeks to see if it could break above the 0.7375 high from February. Whilst we cannot rule out a break later this year, we now see potential for a pullback from current levels. Last week produced a dark cloud cover pattern which was also a marginally bearish outside week. The fact its high was below the Feb high is also another side of near-term weakness, as is the fact this occurred after touching the upper bollinger band. The 20 week DPO (detrended price oscillator) also moved lower after testing its own bollinger band.
To look at this from the US Dollar’s perspective, the downside appears to have stopped for now and eyes will be on Yellen’s testimony on Wednesday night for further clues of Fed tightening. As the USD remain unloved and possibly oversold over the near-term, we see potential for a bounce higher on DXY which may pile on the pressure on NZDUSD.
The impressive gains from the May low was fuelled by three main drivers; RBNZ becoming less dovish; A weaker USD; higher milk powder prices. It is therefor worth noting that some of this support has taken a side-step whilst NZDUSD has remain elevated. Milk prices stopped rising in June, RBNZ have not exactly turned into prominent hawks and, as mentioned, there is potential for a spike higher on US Dollar as markets continue to doubt Fed’s ability to tighten.
NZDUSD appears to be considering a break of 0.7250 support. As this is also where the monthly pivot awaits, it may hold for a while longer yet but we also note a lower low and lower high has formed to suggest downside momentum is building.
We can use a sell-stop to catch a downside break with the view to target 0.719, and 07145 where the 38.2% retracement awaits.