New Zealand retail sales are expected to have increased by 0.5% in August following the month’s prior disappointing 0.5% decline. The 0.9% shortfall in Julys from expectations of 0.4% makes an August gain far from certain.
[U][B]Trading the News: New Zealand Retail Sales[/B][/U]
[U][B]What’s Expected[/B][/U]
Time of release: [B] 10/12/2009 21:45 GMT, 17:45 EST[/B]
Primary Pair Impact : [B]NZDUSD[/B]
Expected: 0.5%
Previous: -0.5%
[B][U]Impact New Zealand Retail Sales had over NZDUSD for the past 2 months[/U][/B]
[U]July 2009 New Zealand Retail Sales[/U]
New Zealand retail sales unexpectedly fell for a second month in July by 0.5%. What the release more discouraging was the June’s reading was revised lower from a 0.1% gain to a loss of -0.1%. Declines in fast food , department stores and furniture purchases showed that consumer were continuing to retrench following the country’s worse recession
In three decades. A 2.1% rise in automobile purchases was encouraging but may be a product of incentives. RBA Governor Bollard has forewarned of a “patchy” recovery which the weak domestic consumption supports. The dismal results and a bearish reaction led to a short trade that started slow but once market woke up, it would lead to at least 75 pips in profit.
[U]June 2009 New Zealand Retail Sales[/U][B] [/B]
At the time of the release it was reported that New Zealand retail sales rose by 0.1% in June which led to the first quarterly gain in almost two years. Sales for the second three months of the year `rose 0.4% adjusted for inflation as higher home price and record-low interest rates fueled demand. Purchases of appliances rose 8.2% which was the second monthly gain in the category. New Zealanders also increased food consumption and decided to dine out more frequently. A bullish reaction from the improvement in domestic growth would lead to a long trade that generated 50 pips in profit. Broader risk aversion would limit further gains.
[B]What To Look For Before The Release[/B]
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
[B]How To Trade This Event Risk [/B]
New Zealand retail sales are expected to have increased by 0.5% in August following the month’s prior disappointing 0.5% decline. The 0.9% shortfall in Julys from expectations of 0.4% makes an August gain far from certain. Strong domestic growth may add to elevated interest rate expectations for the island nation as it is widely expected that the RBNZ will follow the RBA’s lead and hike rates. The surprising 0.1% growth in the second quarter from the New Zealand economy signaled that the country’s recession ended and helped push the Kiwi to a fresh yearly high. The third quarter consumer price report is scheduled for release and the 0.8% rise in inflation that is economist are predicting will only add to rising yield expectations. However, the New Zealand economy isn’t benefitting to the same degree from Chinese growth as its antipode cousin which lead the central bank on hold for longer. Indeed, the August trade balance report showed a decline in exports to 2.74 billion from 3.18 billion, which could be a consequence of the local currency’s recent appreciation. RBNZ Governor Bollard said that the currency’s gains are “undesirable” and threaten future growth.
Robust consumer consumption should add to prevailing bullish New Zealand bullish sentiment as it would raise growth and inflation expectations which could force the central bank’s hand. A rise in retail sales above 0.5% would set the stage for a long NZD/USD trade. We will look for a green, five-minute candle following the release to confirm a buy entry on two-lots of NZD/USD. Once these conditions are met, we will place our initial stop at the nearby swing low, or a reasonable distance, and this risk will establish our first target. Our second objective will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches its target in order to lock-in our profits.
On the other hand, a consecutive disappointing month in domestic demand could push out the timeline for tightening from the RBNZ and weigh on the Kiwi. As a result, consumption of less than 0.1% would foster a bearish outlook for the New Zealand dollar, and we would follow the same strategy for a short kiwi-dollar trade as the long position above, just in reverse.
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[I]To discuss this report contact David Song, Currency Analyst: <[email protected]>[/I]