NZD/USD teases bullish flag confirmation below 0.7200, focus on US GDP

• NZD/USD grinds higher inside a bullish technical set-up.
• Record trade deficit, softer ANZ data probed bulls ahead of the key day.
• Market sentiment sours amid pre-US GDP cautions, central bank moves.
• No major data at home, risk catalysts are important for fresh impulse.

NZD/USD remains directionless, taking rounds to the weekly top during the initial Asia session on the key Thursday. That being said, the kiwi pair recently retreats to 0.7170 following the first daily negatives in four.

Although hopes of the heavy rate hike by the Reserve Bank of New Zealand (RBNZ) and carry trade keep NZD/USD afloat, recently soft data at home join cautious mood to weigh on the quote of late.

New Zealand (NZ) Trade Balance shrank more than $-2139M (revised) prior to $-2171M in September to mark the all-time low MoM figures. However, the Imports and Exports were better than their previous readouts as the former rose past $6.495 billion to $6.57 billion whereas the latter grew to $4.4 billion versus $4.351 billion.  

On the same line were downbeat figures of October’s Business Confidence and Activity Outlook by the Australia and New Zealand Banking Group (ANZ).

Alternatively, a lower-than-expected US Good Trade Balance and improvement in Durable Goods Orders probed the US dollar bulls ahead of the key Q3 GDP.

It should, however, be noted that the increasing optimism over the monetary policy tightening by the front-line central banks also hints at a reduction in the carry trade and challenge the NZD/USD bulls. Recently, the Bank of Canada (BOC) announced the end of bond purchases and the UK also cuts bond issuance. Further, Australia’s strong prints of the RBA Trimmed Mean CPI also push the Reserve Bank of Australia (RBA) towards a rate hike.

Amid these plays, the US 10-year Treasury yields dropped the most since mid-August and weighed on the US Dollar Index (DXY). However, the equities were mixed and the futures are mildly bid by the press time.

Looking forward, a light calendar at home keeps NZD/USD moves at the mercy of external factors. The same highlight today’s speech from RBA Deputy Governor Guy Debelle and Australia’s Import-Export Price Index for Q3. However, major attention will be given to the preliminary readings of the US Q3 GDP for clear direction.

Read: US Third Quarter GDP Preview: A most uncertain estimate

Technical analysis

NZD/USD prints a bullish flag chart pattern on the four-hour (4H) timeframe amid firmer RSI, suggesting a need for the breakout to portray a fresh upside.

The 0.7190 mark acts as a trigger for the north-run aiming a rally towards 0.7360 theoretical target, with May’s high near 0.7315-20 acting as an intermediate halt. Alternatively, 50-SMA restricts immediate declines around 0.7150 before the flag’s support line, close to 0.7120. In a case where the quote drops below 0.7120, the 100-SMA and 50% Fibonacci retracement of October 06-21 upside, around 0.7050, will be in focus.

NZD/USD: Four-hour chart

Trend: Bullish