Forex Analysis – Trade of the Day: NZD/CAD 29th October 2014

New Zealand – ANZ Business Confidence

At GMT 12:00 a.m., the Australia and New Zealand (ANZ) bank released its business outlook report that measures the business confidence in the New Zealand in terms of the level of a diffusion index by surveying around 1,500 businesses in the country. Since the survey includes various manufacturers, builders, retailers, agricultural firms, and service providers; market analysts consider this index to be a leading indicator of the economic health of the country.

Last month, the ANZ business confidence index came out at 13.4 and this month, it almost doubled and reached 26.5

Canada – Raw Materials Price Index (RMPI)

Later in the afternoon, at GMT 12:30 p.m., the Statistics Canada released the month-over-month Raw Materials Price Index (RMPI) that measures changes in the price of raw materials bought by Canadian manufacturers during the previous month.

Since an increase in raw material price is usually passed on to the consumers, it acts as a leading indicator of consumer inflation in the country. Hence, economists consider the RMPI data to be a vital indicator of future interest rates as well.

Last month, the RMPI went down by 2.2%, and this month the forecast was set at -0.8%. However, the actual RMPI reading came out much worse than expected and it fell by 1.8%, indicating a deflationary pressure on the Canadian economy.

Trade Recommendation for the NZD/CAD

Chart NZDCAD, D1, 2014.10.29 16:46 UTC

The NZD/CAD had been trading with a bearish momentum since July 14, 2014. However, On October 15, the pair broke the down trend line and tried to test the psychological resistance level at 0.9000. After testing this level on four occasions, the NZD/CAD bulls finally gave in on October 21 and it formed a bearish outside bar (BEOB) and subsequently the bearish momentum pushed the price towards the intermediate upward sloping trend line.

On October 23, the NZD/CAD price managed to close below the uptrend line, which was formed by the retracement of the long-term down trend. Currently, the NZD/CAD price is ranging between the short-term resistance at 0.8880 and 0.8750, which is the low of October 23.

As the ANZ business confidence index doubled during the previous month, from a fundamental point of view, it suggests an upcoming bullish move. Furthermore, the deflationary pressure on the Canadian economy from worse than expected raw material price index would also create a bullish pressure on the NZD/CAD. It is likely that the NZD/CAD will break above the 0.8880 level in next few days. However, unless it closes above the resistance level at 0.9000, it may continue to trade with a range bound price action. On the other hand, a close above this level would suggest a CALL in the NZD/CAD.

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