NZD/CAD Sell
The Canadian economy has been on a good run of late. On the 11th of July the Bank of Canada increased interest rates from 1.25% to 1.75%. The economy has shown continued signs of strength after this latest rate hike in the subsequent data releases. The core retails sales increased 1.4% m/m vs 0.6% expected. The GDP data came in strong at 0.5% vs 0.3% expected. The trade balance narrowed and the jobs data out two weeks ago indicated an increase of 54K jobs vs 17K expected. On Friday just gone the CPI showed a stellar release of +3.0 y/y vs 2.5% y/y. Check out Adam's post here.
Now, some of that inflation pressure is being linked to gasoline prices, and the core reading was a manageable 2.0%. So, the headline 3.0% figure is good, but there have been some explanations for the figure which dampen expectations of a repeat of that data, so the market is not in a state of unmitigated bullishness for the CAD in the vey near term. However, the chances of a rate hike in either September or October are now higher than than they were prior to the data release (75%+), so there is bullish pressure under CAD and pullbacks are likely to be bought. Now, Oil prices are falling ( always remember to look at oil prices when trading CAD) however, the 200 MA is coming up on the daily chart which is also a point of Daily horizontal support in the 63 region. So, any further falls in oil are likely to be held there, at least for the short term. (A short term scalp could be had off the 62.88 region to grab 30 points or so on a technical bounce).
In contrast NZD is experiencing weakness and the RBNZ is on a lower for longer path, which it announced to the markets this month. Furthermore, there are starting to be some analysts who are calling for a cut . Eamonn was out earlier with a report from ANZ saying just that.
So, with two opposing pairs I favour a NZD/CAD short. Price leant against the 50 MA on the release of the CPI data on Friday on the 4hr chart and risk can be defined and limited above those highs. Please note that the chart below is the NZD/CAD 4 hour chart..
