Bollard Might Pull a Greenspan: Some Filler as I Find a Better Picture

Technicals: Kiwi Consolidating at Top of Range

R4: .7624 50% Major Fibo Extention 5/18-12/6
R3: .7463 38.2% Major Fibo Extension 5/18-12/6
R2: .7265 10 Year High
R1: .7202 Bollinger Top 2005 High

S1: .7104 Consolidation of 10&20 Day EMA, former 10 Year Double Top
S2: .6985 100 Daily EMA, Bottom Boundary of Wedge, Sell Break
S3: .6837 50% Minor Fibo retrace 9/8-12/6
S4: .6740 Confluence of 61.8% Minor Fibo retrace 5/18-12/6 and 38.2% Major Fibo 5/18-12/06

After riding on the coattails of widespread USD weakness and printing the 10 year high crescendo of .7266 in early December of 2004, the Kiwi has taken a breather between rounds, meandering in a 300 point swing range and consolidating, as relative strength has found comfort around the mean zone, with the MACD histogram demonstrating the same content. Stochastics are currently residing in the now familiar overbought territory as price action once again hits a brick wall on the upside approaching the .7200 figure bouncing habitually off the top Bollinger Band. Directional movement is showing minimal disparity with ADX continuing to register a paltry 8.00 reading casting doubt on the last discernible trend signals that were approached in mid January. The lack of robust definitive price action has lead us to conservative price targets in the near term support and resistance levels. On the upside, the psychological 10 year high still remains a sumptuous target, as it coincides with the 123.6% Fibo extension if follow through is validated, although the lower highs made since then have waned on the Kiwi, ushering in the less grand monthly double top around .7200 as a more critical figure of price magnetism. Downside estimates will come into play after price action breaks through the short term noise of the 10 and 20 day EMAs and clears the way for the 100 EMA fortress around .6985, which coincides with the bottom trend line of the quarterly wedge, and has been raided three times since the last definable wave of the rally but withstood penetration. Closure of price action below this level should take a very brief pit stop around the 38.2% Minor Fibo level at .6943, and gravitate to the consolidation periods of early November at the 50% Minor Fibo levels .6837.

Key Levels: A close above .7200 will reinvigorate a run to the 10 year high. Downside breakout of quarterly wedge and close below the 100 day EMA will challenge the 38.2% at .6943.

Fundamentals: Strong Job Growth, Weak Retail Sales Give Bollard Mixed Emotions

Although the mighty Euro’s fantastic beating of the greenback supplied the fireworks to the Kiwi’s comeback by the end of the year, its strong set of legs was given to it by a strict Central Bank monetary policy and the opening up of China and her capital markets, erupting a demand shock in Southeast Asia and with strong ripples into Australia and New Zealand. Naturally, New Zealand’s quarterly Jobless Rate fell to a 19 year low with an addition of 33,000 jobs, knocking the unemployment rate down to 3.6% from 3.8% registered in the third quarter. Clearly, signs of impending wage competition and inflation painted the scenery with a 2.5% surge in labor costs, the most brisk pace in over 10 years. Coupled with a 2.7% rise in consumer prices for the year, the possibility of a 25 basis point raise in the March 10th Reserve Bank meeting is not out of sight. Kiwi closed strongly on the day of the release from a low of .7031 to .7124 to the dollar. The front month for the 3 Mo bank- bill futures dropped in price, boosting the yield as high as 6.88%. With that said, although the Kiwi has held onto the gains of the past week despite, a hiccup in the long term uptrend, if not a slowdown might take effect as the rising rates have demonstratively rained on the Retail Sale parade, with a 0.4% decline in December, the first decline in 3 months of previous gains. To attest to the necessity of the six interest rate hikes in 2004 to a four year high of 6.5%, retail sales are still up a solid 8.1% since last year. Notwithstanding the overall strong year for New Zealand, economists are betting on no change in rates for the March 10 meeting. Signs of profit taking on carry trades have also capped upward price action in the Kiwi as Non Resident Bond Holdings for January declined to 62.9% from 64.9%. Reserve Bank Governor Allan Bollard is now shifting focus towards the ‘current momentum of household demand’ with is charging along at such a torrent pace that construction capacity is constrained by worker shortages.